Investors wanting higher yields than they could get from government or investment grade corporate bonds would normally have to invest in bonds from issuers with lower credit ratings. Less financially secure issuers must pay higher coupons to compensate bond investors for the additional risk they’d be taking, i.e., the risk of the issuer being unable to pay the coupons or the principal. While this trade-off is agreeable for some investors, others are unable to accept this higher default risk.
Fortunately, more innovative solutions are now available. While they are not without risk, our innovative income ETFs can offer investors the potential for higher yields without having to necessarily accept lower credit quality at the issuer level. These securities are often from investment-grade issuers, with the higher coupons driven by their subordination and other features, not the company’s credit rating.