Riding the income in fixed income

Central bank policy shifts since 2022 ushered in a golden age of fixed income where bonds have become a primary engine for yield after an extended period of low interest rates. Currently, over 60% of fixed income assets still yield over 4%. As elevated yields continue to make income a key driver of steady returns, investors can benefit from using all the tools at their disposal to find diversified and differentiated sources of income.

Today, bond ETFs offer access to an array of fixed income global opportunities, allowing investors to make use of the full scope of the investing universe to construct a modern portfolio geared towards stable income generation. The outcome? A 6% bond income portfolio made entirely from bond ETFs, without needing to overextend on risk, both in terms of going down the credit quality spectrum or taking on too much duration.

The 6% yield portfolio

What’s the secret sauce?

1. Utilizing the global opportunity set. Diverging central bank policy and geopolitical uncertainty means investors can benefit from a diversified global allocation – from core USD exposures, to EUR exposures hedged to USD for a yield pickup, to Emerging Markets Debt which offer diversification benefits and more attractive income.
2. Leveling up with the securitized stack. Bond ETFs now offer targeted exposure to plus sectors including AAA CLOs and Global AT1s through an actively managed approach, which offer attractive yields, as well as stronger relative value and uncorrelated sources of returns compared to traditional fixed income.
3. Expanding the income toolkit. Innovative products such as BuyWrite covered call ETFs convert upside potential to coupon income, and can offer enhanced income potential through 2 distinct sources of income – the underlying ETF distributions and income from option premiums