With 2024 rapidly coming to a conclusion, some investors may want to look closer at their fixed income portfolios before the new year begins.
Recently, members of the Natixis Investment Management team discussed their outlook for the post-election fixed income landscape. In the podcast, the team discusses a few headwinds that could affect an investor’s income-gathering strategy.
To start, returns on many cash strategies are now declining. While cash alternatives may have performed well for the past few years, investors may want to opt for different strategies to build their income.
However, the Natixis team is exercising caution regarding relying on the Agg. On the podcast, Mark Cintolo, CFA, CAIA, Natixis vice president and portfolio consultant, discussed the overconcentration risk currently present in the Agg.
“If you’re investing in the Agg, you’re basically getting passive exposure to U.S. Treasury bonds, agency mortgage-backed securities, and U.S. corporate bonds,” he explained. “This index is only half of the overall U.S. fixed income universe, meaning you’re missing out on diversifying exposures in other fixed income segments.”
Additionally, Cintolo cautioned that the share of U.S. Treasuries within the Agg has continued to increase over the past few years: “Increasingly, the Agg is just a play on Treasury yields.”
Looking Past the Agg
Many fixed income segments can help investors diversify from the Agg. These include CLOs, high yield bonds, and floating-rate loans, among others. However, if investors want to branch out even farther from the Agg, an equity income strategy could help.
Take the Natixis Gateway Quality Income ETF (GQI ), for example. This fund blends a portfolio of quality equity companies with an options overlay to provide monthly income.
This blended strategy from GQI has been offering extremely strong yield to its investors. As of December 16, 2024, the fund has a 30-day SEC yield of 8.25%.
Meanwhile, the fund’s equity portfolio offers long-term capital appreciation. GQI’s NAV has jumped more than 19% over the last 12 months as of December 16, 2024.
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