Want Bond Portfolio Income? Don’t Ignore Active

Market uncertainty is on the rise, and volatility can’t be too far away. Many investors look to their bond portfolio for ballast in those times, adding income. Especially for those at or near retirement, bond coupons and other current income sources can play a big role. Of course, not all bond portfolio income options are created equal. When looking at current income ETFs, it may be worth considering how an active approach can offer more.

See more: 5 Years In, This ETF Charts a New Path for Core Bond Funds

Why active? Bond portfolio income is meant to address volatility, but leaning on a passive strategy can limit a fund’s ability to do so. Active, by contrast, can address potential issues or market swings. 

Outside of day to day shifts, however active has another role in any fixed income strategy. On a basic level, if a bond is called early or defaults, passive funds may struggle to quickly adapt. That may prevent a passive strategy from properly replicating its index allocations, further limiting its ability to deliver on its goals. An active bond portfolio income solution, by contrast, not only leans on a deeper, fundamental research approach, but can easily swap securities as needed.

MUSI’s Income Approach

What kind of active bond ETF should investors consider, then, to meet their portfolio income goals? MUSI, the American Century Multisector Income ETF, may merit a look. The strategy charges a 37 basis point (bps) fee for an active approach to income. Its global bond portfolio looks at investment grade corporate, high yield, bank loans, securitized and emerging market debt securities. Its managers can also invest in preferred stock, convertible securities, and other income-providing offerings.

Together, that has helped the strategy return 7.5% YTD, outperforming its ETF Database Category average in that time. It has also outperformed over one and three year periods, as well, beating the category average therein. MUSI offered investors a 6.5% yield to maturity per American Century Investments data as of October 31st. What’s more, MUSI offered a 5.9% 12-month distribution rate as of the same date.

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