Many advisors are still struggling to get client money off the sidelines. However, with investors searching for yield in a rate-cutting environment, now may be an opportune time to take on some risk and extend duration with a short duration income ETF.
The Federal Reserve cut rates by a half percentage point at its September meeting, ending its 14-month pause period. This marks an easing cycle and the ideal time to rethink portfolio allocations.
Importantly, bond markets have historically performed well during cutting cycles, with fixed income investment historically outperforming cash during this time.
Investors may considering moving from cash or ultra-short products to short duration like the Neuberger Berman Short Duration Income ETF (NBSD ) to boost yield. NBSD has a distribution rate of 5.94% as of Aug. 30.
Under the Hood of Neuberger Berman’s Short Duration Income ETF
NBSD seeks to offer investors access to high current income consistent with liquidity, while mitigating principal risk. The fund is actively managed and charges 35 basis points.
The short duration income ETF invests in fixed and floating-rate investment-grade bonds, along with other debt instruments. The portfolio can also include collateralized debt and loan obligations, credit risk transfer securities, and mortgage- and asset-backed securities.
To monitor trends across markets and industries, the ETF uses a mix of qualitative and quantitative factors. By doing so, NBSD may reposition investments to capture undervalued sectors of the bond market.
To mitigate credit risk, the fund invests in a wide variety of issuers and securities. This may include U.S. Treasury securities, derivative instruments, or different ETFs, among other options.
A smaller portion of investments may be allocated toward junk bonds to bolster the fund’s yield and add diversification. In selecting potential junk bonds, NBSD seeks issuers with stronger financial health, with the potential to have their credit rating raised.
To learn about diversifying income streams with options strategies, please join our upcoming webcast on Monday, Oct. 7, at 2 p.m. ET (register here. )
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