A Fixed Income ETF to Balance Risk Management and Income Generation in Today’s Market


The current market environment presents challenges, but fixed income investors may want to consider an alternative exchange-traded fund strategy to address this particularly unruly market.

During the recent webcast, Managing fixed income allocations in turbulent times, Bilal Memon, portfolio manager at Northern Trust Asset Management, highlighted the ongoing hurdles many investors face today. For example, supply constraints and rising general inflation have kept inflation well above the Federal Reserve’s target. The coronavirus pandemic has persisted longer than expected, but growth is expected to remain positive.

Looking ahead, the market is pricing in about nine interest rate hikes throughout the year. The yield curve shifted noticeably upwards and inverted as market participants assessed the path of monetary policy. Additionally, credit spreads have widened due to inflation, growth prospects and geopolitical risks.

To help investors better navigate the current fixed income environment, Memon highlighted the FlexShares Ready Access Variable Income Fund (RAVI)a short-term debt strategy that is ideal for investors who want to preserve their capital while generating a little more income on top of that.

RAVI is “designed to bridge the gap between cash and short-term investments while preserving capital,” Memon said.

RAVI offers investors a vehicle with higher return potential than money market funds while retaining the liquidity needed to hold funds for use in short-term investment decisions. Leveraging Northern Trust’s expertise in the fixed income markets, the fund can fill a gap between money market funds and short-term bond funds. The ETF is designed to provide investment liquidity, minimal principle volatility and the potential for higher returns.

“We seek alpha by actively managing duration, yield curve positioning, sector allocation and stock selection – maximizing return opportunities and mitigating risk,” Memon said.

The portfolio is based on fundamental research and relative value analysis to identify securities with the highest return potential. The robust investment process emphasizes macroeconomic analysis, credit research and risk management. Specifically, macroeconomic themes include leading indicators, economic and market trends, political developments, interest rate expectations, monetary and fiscal policy, and regulatory changes. Meanwhile, the credit research process includes credit fundamentals, relative value analysis, credit rating expectations, proprietary internal rating, independent security approval prior to purchase, the economic cycle and emission trends.

“FlexShares Ready Access Variable Income Fund (RAVI) leverages the expertise of Northern Trust to provide investors with a vehicle with higher return potential than money market funds while maintaining the liquidity needed to hold funds to use in short-term investment decisions,” added Memon.

Financial advisors interested in learning more about fixed income strategies can watch the webcast here on demand.


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