Principal Financial Group, the financial behemoth with $500 billion in assets under management and better known for its range of 401(k) retirement plans, insurance products and mutual funds, recently forayed into the exchange traded funds segment.
The newly launched Principal EDGE Active Income ETF (YLD) is sub-advised by Principal’s EDGE Asset Management unit and seeks to provide current income by investing in six income producing asset classes. Generally speaking, multi-asset ETFs provide exposure to a wide range of asset classes and provide much needed diversification to income investment products.
While YLD is an actively managed fund, it seeks to beat the performance of the Barclays US Corporate High Yield 2% Issuer Capped Bond Index by using tactical asset allocation methods. In a sense, the fund is a pretty much “go-anywhere” product as the portfolio manager can invest across asset classes and geographic boundaries in search of income.
Based on economic conditions and macro indicators, YLD allocates funds in equities and fixed income with the aim of generating “current income”. While equities can include domestic and international stocks – including those from emerging markets, the fixed income portfolio may contain sovereign and corporate debt – both investment-grade and junk (below investment grade), convertibles, floating rate notes, preferred stocks and mortgage securities.
Additionally, the fund’s portfolio may add REITs and MLPs without any limit on exposures, other than those mandated by regulators and RIC compliance.
The fund managers hope to achieve about 5 percent yield annually in today’s environment while drawing equal risks from both equities and fixed income. However, since fixed income tends to exhibit less volatility overall than equities, it means the fixed income components gets a larger proportion of the portfolio.
The new fund is likely to face competition from the First Trust Multi-Asset Diversified Income ETF (MDIV), a passively-managed income focused ETF that invests in a similar wide array of asset classes. Since its debut more than two years ago, MDIV has raked in close to a billion dollars in assets.
YLD has a gross expense ratio of 0.94 percent.
Disclosure: No holdings