The U.S. stock market is chugging along in 2024 despite looming risks surrounding inflation, interest rates, and even AI. With many investors approaching retirement, too, the need for current income is continuing to grow. Investors aren’t the only ones focusing on income, however. Nine different asset managers shared their thoughts on income at this year’s ETF Exchange conference in Miami, Florida.
Current Income in 2024
The conference saw NYSE TV’s Floor Talk show interview a variety of ETF and investing leaders. NYSE TV’s Judy Shaw interviewed the asset managers. They shared various perspectives on how best to get current income into portfolios.
For example, Neuberger Berman portfolio manager Derek Devens pointed to income as a diversifier. The Neuberger Berman Options Strategy (NBOS), he said, is “designed to provide structural diversification, some income” and exposure that’s not just relying on capital appreciation or equity markets.
Pacer ETFs president Sean O’Hara pointed out that leading up to the conference, markets have turned to equity portfolios that offer income.
“There seems to be a proliferation of covered call strategies. As the aging of America occurs, people are going to need income from their investment portfolios… There are a lot of people looking at covered call strategies as a solution.”
Pacer ETFs has a slightly different take, using dividend futures instead of covered call strategies. Its Pacer Metaurus US Large Cap Dividend Multiplier 400 ETF (QDPL) aims to produce four times the income of the S&P 500 using dividend futures.
Getting the Most Out of Current Income in 2024
Elsewhere, the focus turned towards getting more out of income. Lance McGray, managing director and head of ETFs at Advisors Asset Management, spoke to a focus on tax-efficient income. The firm focuses on dividends, with McGray emphasizing the firm’s low-duration preferred product, the AAM Low Duration Preferred and Income Securities ETF (PFLD).
“This is a solution that provides that diversified, tax-efficient income for those income-seeking investors,” he said.
That demand for income is coming from older and younger investors, according to Roundhill Investments Chief Strategy Officer Dave Mazza.
“More than ever we’re hearing from clients of all types and even younger clients that they have a consistent need for income to grow their portfolios,” Mazza said. “Really what we’re focusing on is quality income and income growth.”
Mazza pointed to a product that focuses on dividend “monarchs” rather than dividend aristocrats, or firms that have seen long-term, growing dividends. That strategy, the Roundhill S&P 500 Dividend Monarchs ETF (KNGS), launched in November last year.
Interest Rates
Interest rates have stood out as a factor for investors, as discussed by GraniteShares ETFS CEO Will Rhind.
“In this environment, we’re expecting interest rates to fall, so investors that have gotten used to a high level of income with interest rates being so high now face the problem of the opposite happening, so we want to solve that problem for investors,” Rhind said.
He pointed to an ETF called the GraniteShares HIPS US High Income ETF (HIPS). HIPS offers a fixed cash distribution each month, Rhind explained, with investors looking into the yield when they invest in it. It charges a 199 basis point (bps) fee for its exposure to REITs, MLPs, BDCS, closed-end funds, and more.
Amplify ETFs CEO Christian Magoon also pointed out interest rates as a point of concern for current income investors. That firm offers a few strategies including combining to offer a barbell solution. Combining its Amplify Samsung SOFR ETF (SOF) which provides exposure to the Secured Overnight Financing Rate, and ETFs like the Amplify High Income ETF (YYY), it looks to capture two different sides of the current income conversation.
Some firms are turning towards ETF costs to provide investors with more access to income. Schwab Asset Management client portfolio strategist Eliot Bishop shared that the firm had lowered its fixed income ETF pricing to just three bps across the board.
Active ETFs
Active ETFs are increasingly playing a role in current income in 2024, too. Morgan Stanley Investment Management’s global head of ETFs Anthony Rochte mentioned his firm’s active strategies focused on income like the Parametric Equity Premium Income ETF( PAPI).
American Century Investments vice president and head of portfolio solutions Rene Casis spoke to active ETFs as an increasingly large and complicated space. Model portfolios, he said, can help with that.
“We can create asset allocation models that will help investors achieve asset allocation outcomes,” Casis said. “This can mean anything from managing risk to enhancing income.”
American Century Investments offers an active, multi-sector income strategy, the American Century Multisector Income ETF (MUSI) as one way to get into income. The strategy is set to hit its three-year ETF milestone this summer.
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