CVY tracks the Zacks Multi-Asset Income Index, which “uses quantitative analysis to select stocks from the Index universe to obtain a representative sample of stocks that resemble the Index in terms of key risk factors, performance attributes, and other characteristics,” according to Invesco.
Securities currently held by CVY include common stocks, master limited partnerships (MLPs), real estate investment trusts (REITs), closed-end funds and preferred stocks. In other words, CVY is ideally suited for today’s low-yield environment.
Prepare For Interest Rate Changes
Multi-asset ETFs are now exposed to interest rate risks as many of their underlying holdings are sensitive to rate changes.
For instance, higher short-term rates increases funding costs for REITs, and higher long-term rates could raise book values for existing mortgage REITs. If rates rise, the cost of capital for MLPs would also increase, which would lower distributions on the asset and make the play less attractive.
CVY, which has a 30-day SEC yield of 4.51%, or about triple the yield on 10-year Treasuries, has nearly 150 holdings. Financial services, energy, and real estate investments combine for about 59% of the fund’s weight.
CVY’s real estate exposure is notable at a time when investors are prizing defensive sector and as interest rates decline. The fund’s MLP exposure is useful not only because of the high yields associated with that asset class but due to low correlations to traditional energy equities.
MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around. Consequently, MLPs have historically shown a weaker correlation to energy prices over longer periods as MLPs act more like energy toll roads, profiting on the volume of oil moving through their pipelines.
CVY also features a value tilt as nearly three-quarters of its holdings have the value designation.
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