This article was originally published on ETFTrends.com.
After the three-decade long bull run in the fixed-income market, investors may be looking to actively managed bond ETFs that can better navigate the potential changes ahead.
"I think the timing for active is a great opportunity. Basically, late in the cycle, you're going to have winners and losers, so now is exactly the time when you want that expertise, that credit research, demonstrated investment process," Paul Kim, Managing Director of ETF Strategy at Principal Global Investors, said at the 2018 Morningstar Investment Conference.
For example, the Principal EDGE Active Income ETF (YLD) is an actively managed multi-asset fund. Multi-asset exchange traded funds have provided diversified exposure to a group of various asset classes and generated attractive yields and have become income investor favorites as advisors and investors searched for new yield sources amid several years of rock-bottom U.S. interest rates.
YLD seeks to generate consistent income through changing market environments and over market cycles. It invests opportunistically across a diversified range of income-generating asset classes while managing for risk. EDGE’s proven investment process, long history of income investing, and strong risk management and credit research capabilities may help enhance returns while reducing risks.
"Think of it as a better high-yield alternative," Kim said.
Additionally, the more recently launched the Principal Investment Grade Corporate Active ETF (IG) tries to provide current income and capital appreciation by investing in investment-grade corporate bonds rated BBB- or higher by S&P Global Ratings or Baa3 or higher by Moody’s Investors Service.
"You get to pick the business models that do better in a rising rate environment, business models that do better where yield curve is starting to move," Kim said.
Additionally, the Principal Spectrum Preferred Securities Active ETF (PREF) provides exposure to current income through preferred securities.
"Preferreds have a lot of embedded sort of protection against rising rates, better duration exposure or lower duration," Kim added.
For more ETF-related commentary from Tom Lydon and other industry experts, visit our video category.
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