Income diversification in today’s environment is imperative, making exchange traded funds (ETFs) like the FlexShares Ready Access Variable Income Fund (RAVI ) an ideal option.
RAVI is an attractive alternative when short-term capital storage is necessary. As such, money market funds are typically utilized for this purpose, but at the current rates of about 50 basis points, investors want more.
The low-yield environment is certainly forcing investors to look beyond run-of-the-mill options like Treasury notes. Rather than sift through a mass of opportunities, RAVI essentially does all the heavy lifting and can give investors that varied fixed income exposure.
RAVI seeks maximum current income consistent with the preservation of capital and liquidity. The fund seeks to achieve its investment objective by investing at least 80% of its total assets in a non-diversified portfolio of fixed income instruments, including bonds, debt securities, and other similar instruments issued by U.S. and non-U.S. public and private sector entities.
Rather than opting for money market funds, investors can also use RAVI as a short-term solution to park capital. The ETF is an ideal option, especially given the low rates offered by money market funds or yields from Treasury notes.
“RAVI is one of several short-term debt funds marketed to investors who want to preserve capital while wringing out a bit more income than they can get from Treasuries,” an ETF Database analysis explained. “The Northern Trust portfolio team behind RAVI looks for short-term investment-grade debt, including public and private securities from U.S. and non-U.S. issuers.”
Diversification is Key
In a recent article, Insights From A Decade of ETF Investing, one of the key benefits of RAVI is its income diversification. It’s one of the aspects that make ETF investing a welcome benefit for investors.
“Investors need diversification they can count on. That’s why we build portfolios that balance many different sources of risk and return,” the article said.
“Applying a factor lens can help us build and maintain that balance,” the article added. “For example, the value, size, and dividend yield factors have outperformed during the current economic recovery, as they have in past recoveries. Also keeping a degree of exposure to the low-volatility factor helps to manage the risk of an unexpected downturn — for example, due to a resurgence of COVID — without radically changing the structure of the portfolio.”
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