Clients looking for income? Not satisfied with your core fixed income allocation and want to add some oomph? The American Century Short Duration Strategic Income ETF (SDSI) could provide the right boost to a core allocation with its status as an active, core-plus income strategy. That type of active income ETF could arrive at a key moment as rising inflation looms.
Key Takeaways:
- SDSI has provided a 5.73% yield to maturity and a 4.74% 12-month distribution rate, per American Century Investments data.
- The active income ETF could help investors deal with steady inflation, especially for those at or near retirement.
- It has also provided some equity returns, returning 4.4% over the last year.
SDSI charges 32 basis points to actively invest in short-duration fixed income securities. The strategy, which launched in 2022, has also delivered some solid capital appreciation over the last 12 months. The active income ETF has returned 4.4% in that time, beating the ETF Database Total Bond Market Category average.
More important, of course, would be the income the fund has delivered. Per American Century Investments data as of June 30 this year, the income ETF offered some notable yields. SDSI produced a 4.74% 12-month distribution rate and a 5.73% yield to maturity.
SDSI’s Active Income ETF Approach
How, then, does the fund invest to produce those yields and income? SDSI actively invests in securities ranging from collateralized debt obligations and preferred stocks to bank loans and asset-backed securities.
Its managers build its holdings based on both economic conditions and expected interest rates. With its active remit, it also can invest, on occasion, in derivatives, like swaps, to add income via that route.
See more: American Century Muni Bonds Leader Gotelli Talks Outlook
That kind of income could meaningfully improve a portfolio’s ability to help clients, especially those at or near retirement. Energy costs, especially, could really start to bite if the Strait of Hormuz conflict continues.
By combining capital appreciation with income in an active ETF wrapper, the fund could make for a useful tool and portfolio booster to complement lower cost core fixed income holdings. With the ETF wrapper’s lower tax impact and easier tradability, too, SDSI could be one to watch in the second half.
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