The proliferation of a new wave of fixed-income exchange-traded funds (ETFs) that could potentially present investors with a wider range of investing options and a method for more precisely obtaining the desired exposure to assets.
A Bloomberg article refers to this class of ETFs as being "a new breed." While the creators of these funds previously had the goal of allowing investors to gain exposure to smaller and smaller baskets of assets and in effort to allocate resources as precisely as possible, a new batch of funds called multi-asset income ETFs allow investors to gain access to a larger swath of assets that produce income.
One example of this type of fund is State Street Global Advisors' SSgA Income Allocation ETF, which has the ability to invest in or divest from approximately 20 State Street ETFs, which can provide the financial instrument with the ability to gain exposure to a wide range of assets including preferred stocks and emerging market bonds, according to the media outlet.
Atlanta-based financial adviser Mitchell Reiner told the news source that having a one-size-fits-all approach may not work, saying that "I just don’t know how much owning one ETF will satisfy investors’ needs for retirement solutions."
Morningstar analyst Patricia Oey stated in a recent report that there are not many funds of this type and that they have not generated substantial visibility from investors, according to ETF Trends.
She stated that "these ETFs, as one-stop funds for diversified income exposure, seek to address investors’ need for higher and potentially more stable income," the media outlet reports. Oey explained that the securities "invest across a number of 'income' asset classes, such as U.S. and foreign dividend-paying equities, REITs, Master Limited Partnerships, high-yield bonds and emerging-markets debt."
While some of the these financial instruments are actively managed by a team of professionals, some of them passively track indices, according to the news source. "These funds could be attractive to income-oriented investors who tend to be more overweight traditional income securities, such as utilities, and safer lower-yielding bonds," she stated.
New hunger for yield
State Street told Bloomberg that the firm's clients are looking to obtain different things from ETFs. Christopher Goolgasian, State Street’s head of U.S. portfolio management investment solutions group, told the news source that these customers repeatedly ask the same two questions, which are "what could I have done differently during the 2008 credit crisis and what options do I have in this yield-starved environment?"