Active ETFs have become increasingly popular among incomer investors as rising interest rates make passive bond funds less attractive. While some actively managed funds hedge against interest rates or reduce duration, a handful leverage alternative income-generating assets, such as securitized assets.
Let’s take a closer look at three newly launched active income ETFs, their strategies to generate yield, and some of their most significant holdings.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
1. Touchstone Dividend Select ETF (DVND)
The Touchstone Dividend Select ETF (DVND) invests in a concentrated portfolio of 40 to 55 large-cap dividend-paying equities. Rather than weighting the portfolio by market capitalization, the fund managers seek out companies with a competitive advantage (e.g., customer loyalty, economies of scale, etc.), growing dividends and reasonable valuations.
The fund’s most significant holdings include Microsoft Corp. (4.01%), Apple Inc. (2.55%), Exxon Mobil Corp. (2.54%), UnitedHealth Group Inc. (2.51%) and McDonald’s Corp. (2.45%).
The fund has an expense ratio of 0.67% and about $8.5 million in assets. While it’s too early to calculate a yield, the fund plans on making quarterly dividend distributions. As a result, income investors seeking high-quality quarterly dividends with a tilt toward value-based holdings may want to consider Touchstone Dividend Select ETF for their portfolios.
2. Touchstone Strategic Income Opportunities ETF (SIO)
The Touchstone Strategic Income Opportunities ETF (SIO) invests in corporate debt securities, mortgage-related securities, asset-backed securities, government securities and preferred stocks. Like the previous ETF, the fund’s managers focus on building a high conviction, broadly diversified portfolio with a low correlation to traditional asset classes.
The fund’s most significant holdings include Investment Grade Corporate Debt (22.8%), Non-Investment Grade Corporate Debt (22%), Emerging Markets Debt (9.9%), US Treasuries (7.9%) and Securitized Debt CLOs (7.3%).
With $85 million in assets, the fund is larger than the prior fund and charges a slightly lower expense ratio of 0.65%. And while the previous fund offers quarterly distributions, the Touchstone Strategic Income Opportunities ETF offers monthly distributions, making it potentially more appealing to those relying on regular income.
3. IQ MacKay Multi-Sector Income ETF (MMSB)
The IQ MacKay Multi-Sector Income ETF (MMSB) invests in domestic and foreign debt securities utilizing various investment strategies in a broad range of fixed income sectors. Using top-down global macroeconomic analysis and bottom-up security selection, the fund managers seek to maximize current income with attractive risk-adjusted returns.
The fund’s most significant holdings include Corporate Bonds (43.7%), Government Bonds (26.8%), Securitized Assets (19.4%) and Municipal Bonds (8.6%)
The fund has about $25 million in assets with a 0.4% expense ratio. Given the fund’s diverse exposure to corporate, government and securitized bonds, investors looking for a multi-sector and multi-asset approach may want to consider the fund for their portfolios.
The Bottom Line
Active income ETFs have become a popular category for income-focused investors trying to avoid collateral damage in passive bond funds. While there are many different options, the three newly launched ETFs covered above leverage alternative income-generating assets to minimize interest rate risk and potentially generate attractive yields.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.