3 Ultra-Safe Fixed Income ETFs That Can Double the Average CD Rate
With floating rate notes, the maturities may be longer, but the rates on them reset regularly, typically every week. Because of that, they come with very little interest rate sensitivity. Since they're issued by the U.S. Treasury, they also have virtually no credit risk. That combination makes the share price on this fund incredibly stable and one of the best sources of safe, predictable income.
Currently, this ETF is yielding 3.6%.
3. Janus Henderson AAA CLO ETF
The Janus Henderson AAA CLO ETF(NYSEMKT: JAAA) comes with a significantly higher yield than either of the ETFs mentioned already. But it's important to be clear that it's not anything like the other funds, either.
This fund doesn't invest in bonds. It invests in collateralized loan obligations (CLOs), which are essentially baskets of loans originated by banks. These loans are typically made to lower-rated borrowers, but they're often grouped together by credit rating so investors can get a better handle on the product's credit profile.
In the case of this ETF, it only invests in the very highest AAA-rated tier, making credit risk almost non-existent. CLOs are floating-rate, so they also come with little interest rate risk. What's in this ETF is very different from what's in a traditional bond fund, but the similar credit and interest rate risk profiles make them behave very similarly to the funds already mentioned.
Currently, this ETF is yielding 4.8%.
Why does this ETF have such a higher yield if its credit and rate profile is almost identical to the others'? In many cases, CLOs are less liquid than traditional bonds. Because of that lack of liquidity, there is the possibility that they're not as easy to trade if market conditions begin to deteriorate. Investors demand a higher yield for that additional risk. If you're looking for ultra-safe income, this ETF will often deliver. But as with other funds, there are no guarantees.
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3 Ultra-Safe Fixed Income ETFs That Can Double the Average CD Rate was originally published by The Motley Fool
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