Income ideas for challenging markets

It’s a challenging investment environment. Interest rates have spiked, employment numbers have consistently surprised to the upside and the market has pushed back expectations for further interest rate cuts. We keep getting stronger-than-expected data, but there's still a lot of instability around policy, especially related to President Trump’s tariff ideas and their potential impact on growth and inflation. As visibility changes day-to-day, it’s a challenging investment environment, and it’s crucial to stay balanced.

As we see it, our focus on floating rate and bank loans throughout 2024 seems to have been a good decision. Despite the market's unpredictability, floating rate could be an appropriate solution in the current economic conditions. It’s designed to offer attractive yield with less interest rate risk compared to other fixed income options. And bank loans posted some of the strongest returns through the end of the year. 

Floating rate instruments such as ICLO, Invesco AAA CLO Floating Rate Note ETF, and  bank loans like BKLN, Invesco Senior Loan ETF, might be promising considering the uncertainties around the rate outlook as we kick off the new year.

Looking ahead, if rates continue to rise too quickly, we think it might be time to consider adding some duration. GOVI, Invesco’s Equal Weight 0-30 Year Treasury ETF could offer a straightforward way for investors to track movements in the yield curve with a more controlled exposure to longer-duration and each segment of the curve. I believe rates today (with the 10 yr US Treasury Note yield above 4.5%) are pretty close to fair value.  Yield spikes at--or above--current levels, could represent opportunities to add a little duration since we think there's better value in the long end of the curve now compared to early December when rates were much lower.

Learn more about BKLN, ICLO, and GOVI and get additional insights in the featured products and resources section below this video.

Important Information

All data from Bloomberg as of 12/31/2024 unless otherwise stated.

2024 performance by fixed income asset class as of Dec 31 2024 from Bloomberg:

1          Floating Preferred       11.6%

2          Bank Loan                   8.8%

3          HY Credit                    8.2%

4          CLO AAA                     7.1%

5          USD EM Sov              7.0%

6          Fixed Preferred           7.0%

7          Muni HY                      6.3%

8          ABS                             5.0%

9          CMBS                         4.7%

10        IG Credit                     2.1%

11        US Universal               2.0%

12        US Aggregate             1.3%

13        Agency MBS               1.2%

14        Muni                            1.1%

15        Treasury                      0.6%

Not a Deposit    Not FDIC Insured    Not Guaranteed by the Bank    May Lose Value    Not Insured by any Federal Government Agency

Past performance is not a guarantee of future results. An investment cannot be made into an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

The opinions expressed are those of Invesco, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions, there can be no assurance that actual results will not differ materially from expectations.

There are risks involved with investing in ETFs, including possible loss of money. Index-based ETFs are not actively managed. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Both index-based and actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Index. The Funds are subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Funds.

An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.

ICLO

Variable- and floating-rate securities may be subject to liquidity risk, there may be limitations on the Fund's ability to sell securities. Due to the features of these securities, there can be no guarantee they will pay a certain level of a dividend and such securities will pay lower levels of income in falling interest rate environment.

Risks of collateralized loan obligations include the possibility that distributions from collateral securities will not be adequate to make interest or other payments, the quality of the collateral may decline in value or default, the collateralized loan obligations may be subordinate to other classes, values may be volatile, and disputes with the issuer may produce unexpected investment results.

GOVI

If interest rates fall, it is possible that issuers of callable securities will call or prepay their securities before maturity, causing the  Fund to reinvest proceeds in securities bearing lower interest rates and reducing the Fund’s income and distributions.

Obligations issued by US Government agencies and instrumentalities may receive varying levels of support from the government, which could affect the fund’s ability to recover should they default.

BKLN

Most senior loans are made to corporations with below investment-grade credit ratings and are subject to significant credit, valuation and liquidity risk. The value of the collateral securing a loan may not be sufficient to cover the amount owed, may be found invalid or may be used to pay other outstanding obligations of the borrower under applicable law. There is also the risk that the collateral may be difficult to liquidate, or that a majority of the collateral may be illiquid.

Non-investment grade securities may be subject to greater price volatility due to specific corporate developments, interest-rate sensitivity, negative perceptions of the market, adverse economic and competitive industry conditions and decreased market liquidity. 

The Fund is non-diversified and may experience greater volatility than a more diversified investment

Reinvestment risk is the risk that a bond’s cash flows (coupon income and principal repayment) will be reinvested at an interest rate below that on the original bond.

The Fund may engage in frequent trading of its portfolio securities in connection with the rebalancing or adjustment of the Underlying Index.

The Fund’s use of a representative sampling approach will result in its holding a smaller number of securities than are in the underlying Index, and may be subject to greater volatility.

The Fund may hold illiquid securities that it may be unable to sell at the preferred time or price and could lose its entire investment in such securities.

Under a participation in senior loans, the fund generally will have rights that are more limited than those of lenders or of persons who acquire a senior loan by assignment. In a participation, the fund assumes the credit risk of the lender selling the participation in addition to the credit risk of the borrower. In the event of the insolvency of the lender selling the participation, the fund may be treated as a general creditor of the lender and may not have a senior claim to the lender's interest in the senior loan. Certain participations in senior loans are illiquid and difficult to value.

Investments focused in a particular industry or sector are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.

The investment techniques and risk analysis used by the portfolio managers may not produce the desired results.

The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

The Fund’s income may decline when interest rates fall if it holds a significant portion of short duration securities and/or securities with floating or variable interest rates. If the Fund invests in lower yielding bonds, as the bond’s portfolio mature; the Fund will need to purchase additional bonds, thereby reducing its income.

The Fund may engage in active and frequent trading of its portfolio securities to reflect the rebalancing of the Index.

The Fund currently intends to effect creations and redemptions principally for cash, rather than principally in-kind because of the nature of the Fund's investments. As such, investments in the Fund may be less tax efficient than investments in ETFs that create and redeem in-kind.

Shares are not individually redeemable, and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 10,000, 20,000, 25,000, 50,000, 80,000, 100,000, or 150,000 Shares.

Invesco Distributors, Inc.              02/25                  NA4180755