U.S. equity markets hit fresh highs on Monday on earnings optimism while Treasury yields fell. Despite new gains, potential trouble continues to brew in the background, particularly for bonds. Investors looking to increase income portfolio diversification would do well to consider to two actively managed ETFs from T. Rowe Price.
New analysis from the nonpartisan Congressional Budget Office puts an updated price tag on the budget bill recently signed into law by President Trump. The report found that government deficits will increase by $3.4 trillion over the next decade under the new law. Spending cuts of $1.1 trillion that included pullbacks on SNAP, Medicaid, clean energy and more were paled in comparison to the $4.5 trillion decline in revenue under the new law.
Ballooning government deficits create elevated risks for bonds. Beyond the potential for decreased demand for U.S. bonds, potential structural issues exist as well. The current administration argues that it will offset the new deficit with growth and revenue from tariffs. Failing that, the government will be forced to make ends meet in other ways.
In order to finance the deficit, the government may need to issue more Treasuries. Investors, in turn, would want compensation for this in the form of higher yields, specifically on longer maturity Treasuries. These higher yields in turn puts pressure on bond markets, mortgage and credit rates, and more.
Add Income Diversification & Active Benefits With T. Rowe Price
Advisors and investors looking to diversify the income sleeve of their portfolios may wish to consider equity income ETFs. T. Rowe Price offers two funds, one that combines dividend income with covered call premiums, and one fund that focuses solely on equities and dividends.
The T. Rowe Price Capital Appreciation Premium Income ETF (TCAL ) seeks to deliver monthly income from sources beyond bonds. TCAL generates regular income from dividends as well as covered call premiums. Managed by David Giroux and team, the fund has a high-conviction equity portfolio comprised of companies with attractive risk and return profiles. This portfolio is built using a bottom-up approach that focuses on individual company fundamentals and invests across market caps.
TCAL combines a high conviction equity portfolio with a covered call strategy. The strategy entails selling call options on the stocks within the portfolio with an expiration one to two months out. TCAL has a management fee of 0.34%.
The T. Rowe Price Equity Income ETF (TEQI ) combines value investing and income in one actively managed strategy. The fund focuses primarily on large-cap companies, though it can invest across the market cap spectrum. Companies selected for inclusion maintain a strong balance sheet. The strategy will also select some stocks based on reduced current prices compared to fundamentals. The research team for the fund believes the stocks included in the portfolio demonstrate the potential for capital appreciation as well as dividend consistency.
The fund makes a notable addition to equity portfolios for the diversification a value-focused strategy provides when many portfolios carry an overweight to growth. It also makes a strong addition to income portfolios, bringing income diversification through its equity exposures instead of bonds. TEQI carries an expense ratio of 0.54%.
For more news, information, and analysis, visit our Active ETF Content Hub.
