2026 is somehow almost halfway through, and the market environment has seen quite a lot happen since its start. Entering the year, investors hoped for rate cuts from a new Fed chair. Now, even with the new chair taking charge, rate cuts seem entirely off the table due to geopolitical events and resurgent, sticky inflation. Instead, rate hikes may be a possibility — a far cry from the start of the year. How, then, might investors address rising rates?
Key Takeaways:
- As inflation warms up even more, interest rates may be poised to rise, in turn
- That could mean investors need to adapt their fixed income holdings, especially for those at or near retirement
- Income ETF SDSI makes a point of mitigating rising interest rates, which could make it worth considering.
The ETF ecosystem contains myriad, powerful strategies for just such an event. The American Century Short Duration Strategic Income ETF (SDSI ) specifically aims at mitigating rising rates and could help investors, especially those at or near retirement, get some more income for turbulent times.
SDSI launched in 2022, and charges a 32 basis point fee. The strategy actively invests in a broad grouping of short duration fixed income securities. The active income ETF aims to provide “high current income, broad diversification, and the potential to mitigate the impact of rising rates,” according to American Century Investments.
See more: Active Growth ETF FDG is Outperforming More Each Month YTD
The fund looks at fixed income securities of any credit quality, investing in a range of options from bank loans to collateralized debt obligations, including asset-backed securities. Its active management assesses current and future rate potentialities to help identify the best offerings therein, with an average weight duration of three years or shorter. It can also use derivatives and currency exchange contracts to hedge or enhance returns.
That has helped SDSI deliver a 4.91% 12-month distribution rate as of April 30, per American Century Investments data. What’s more, it offered a 5.6% yield to maturity as of that date, as well. The active income ETF has returned 5.65% over the last three years according to ETF Database data, too. That outperformed its ETF Database Total Bond Market category average performance in that time, which came in at 4.1% as of May 22.
Taken together, the fund’s focus on addressing potential rising rates with a deep, active approach could make it a strong option right now. With inflation hot and getting hotter in a still turbulent global environment, adding income with SDSI’s particular rising interest rates approach may be a shrewd move.
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