Virtus ETF Solutions Income Strategist James Jessup said at Exchange 2023 that “income is the overriding theme of essentially all the conversations” he’s having.
And according to Jessup, income is important “for a number of reasons.” One reason is the “changing demographics of the country.”
The “nation is getting older,” Jessup said, adding that individuals who have already retired are living longer. And while Jessup acknowledged that that’s “a good thing,” it does mean that their resources “have to last longer.”
“And income is a very important part of that component,” he said.
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Another issue that’s making income so important is inflation. “Go buy a dozen eggs,” Jessup said. “You’ll find out that in fact inflation has arrived, and that erodes the buying power of those assets.”
Finally, with everything that was “thrown at fixed income investors over the last year… there was really no good place to hide.” Whether it was below investment grade, higher quality, or longer duration, “there wasn’t really a good place to go.”
And although the fixed income market regained some value, 2022 “was a challenging year.”
Gaining Income with NFLT
For investors seeing income, Jessup recommended the Virtus Newfleet Multi-Sector Bond ETF (NFLT ). He cited two reasons the fund is gaining attention. One is the tenure of the team. “Dave Albrycht and his team have been investing in the multi-sector space for over two decades now,” Jessup said. And two, “it has a very wide mandate.”
NFLT can use the entire market, which Jessup said, “is important for two reasons.” First, it has “the whole market available to it.” This means that it can capture opportunity in the U.S. or abroad, or up or down in quality. The second, and “probably even more important" reason, is the fund’s "ability to avoid problems.”
“In all likelihood, defaults are going to rise really across the board for the next year or two,” Jessup said. “And they’re not going to be concentrated the way we’ve seen most recently.” The then-recent defaults he cited were in energy and retail.
Jessup added that many of the weaker businesses no longer being supported by the COVID stimulus money will end up defaulting. “So, active management and that wide mandate” NFLT offers will bypass “some of those problems,” he said.
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