Helping to Manage Rate Sensitivity
Many investors carefully decrease their interest rate sensitivity when the probability of meaningful interest rate increases is ahead of us. There are a variety of ways investors can work to mitigate the effects of rising rates, and many of them focus on a change in fixed income asset composition. Building cash positions, increasing allocations to less interest rate sensitive bonds such as non-investment grade credit, adding more short duration fixed income assets, or outright reallocation from longer duration products into shorter duration products all have the potential to help reduce a portfolio’s overall interest rate sensitivity. Of these, the most direct and effective action may be outright reallocation – but every investor has different goals and considerations.
An Active Approach to Fixed Income
The Natixis Loomis Sayles Short Duration Income ETF (LSST) is a US domiciled ETF managed by Loomis Sayles and their well-regarded relative return fixed income team. LSST is an active ETF whereby the management team allocates to various fixed income asset classes depending on their view of risk-adjusted relative value. The team's philosophy is to reduce risk when market compensation is low and take risk when compensation is high. This philosophy may resonate with investors looking for an active approach with a stable duration profile in a changing interest rate environment.
1. A basis point is equivalent to one hundredth of one percent.
2. Duration is an approximate measure of a bond’s price sensitivity to changes in interest rates.
3. The term yield curve refers to the yield of fixed interest securities compared against the length of time they have until maturity.
RISKS: Exchange-traded funds (ETFs) trade like stocks, are subject to investment risk, and will fluctuate in market value. Unlike mutual funds, ETF shares are not individually redeemable directly with the Fund, and are bought and sold on the secondary market at market price, which may be higher or lower than the ETF's net asset value (NAV). Transactions in shares of ETFs will result in brokerage commissions, which will reduce returns. Active ETFs, unlike typical exchange-traded funds, do not attempt to track or replicate an index. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager. There is no assurance that the investment process will consistently lead to successful investing. Equity securities are volatile and can decline significantly in response to broad market and economic conditions. Foreign securities may involve heightened risk due to currency fluctuations. Additionally, they may be subject to greater political, economic, environmental, credit, and information risks. Fixed income securities/Bonds may carry one or more of the following risks: credit, interest rate (as interest rates rise bond prices usually fall), inflation and liquidity.
The Fund seeks current income consistent with preservation of capital to pursue higher yield potential in short duration yield securities. There is no guarantee that objectives will be met.
ALPS Distributors, Inc. is the distributor for the Natixis Loomis Sayles Short Duration Income ETF. Natixis Distribution, L.P. is a marketing agent. ALPS Distributors, Inc. is not affiliated with Natixis Distribution, L.P.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.