The beginning of a rate-cutting cycle has historically tended to signal an important shift in the market environment for investors.
Investors who want to be best-positioned during the regime shift may want to consider short duration income ETFs as well as securitized credit. Corporate spreads are currently tight, and Neuberger Berman sees the most attractive opportunities in mortgages and securitized credit, according to the firm’s Q4 Asset Allocation Committee Outlook
“While we do not anticipate a meaningful rise in defaults or stress over the coming months, corporate credit spreads appear rather tight relative to the softening economic outlook,” the firm wrote. “For adequate compensation, we increasingly think investors should consider floating-rate and securitized credit markets, where we view spreads as high enough to make up for declining reference rates.”
Securitized Credit
The Neuberger Berman Flexible Credit Income ETF (NBFC ) may be a compelling option for investors in a rate-cutting environment. The fund offers high income and reduced volatility compared to high yield strategies, all without sacrificing yield.
NBFC is unbiased in sector allocation, seeking the best income and total return opportunities across credit markets.
The credit income ETF’s distribution rate is 7.0% as of Sept. 30.
Short Duration Income in a Rate-Cutting Cycle
Alternatively, the Neuberger Berman Short Duration Income ETF (NBSD ) may be a solution for investors looking to move out of cash or ultra-short fixed income products in search of more yield.
NBSD seeks to offer investors access to high current income consistent with liquidity, while mitigating principal risk. 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 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.
NBSD’s distribution rate is 5.3% as of Sept. 30.
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