American Century FUSI’s Steady Monthly Distributions Offer Income Resilience in a Volatile Rate Environment

The American Century Multisector Floating Income ETF (FUSI) has reaffirmed its appeal to income-seeking investors by maintaining a consistent monthly distribution of $0.2428 per share. This reliable payout, which translates to an annualized yield of approximately 5.8% based on its current share price of $50.31, positions FUSI as a compelling option in an environment where traditional fixed-income assets face headwinds from rising interest rates.

The Case for Floating Rate Exposure

FUSI’s strategy centers on bonds with floating or adjustable interest rates, such as Treasury Floating Rate Notes (FRNs), commercial paper, and corporate loans. These instruments reset their coupons periodically—typically quarterly or semi-annually—to reflect prevailing short-term rates. This feature is critical in today’s market, where the Federal Reserve has raised the federal funds rate to 5.25%-5.50%, the highest since 2001, and signaled further hikes to combat inflation.

Unlike traditional fixed-rate bonds, whose prices decline when rates rise, floating-rate securities mitigate this risk. For instance, when the Fed hikes rates, FUSI’s holdings can quickly adjust their yields upward, preserving principal value while boosting income. This dynamic has made floating-rate ETFs like FUSI a refuge for investors fleeing duration risk—the sensitivity of bond prices to interest rate changes.

Performance and Yield in Context

Year-to-date through August 2023, FUSI has returned approximately 2.8%, outperforming the Bloomberg Aggregate Bond Index, which has lost about 4.5% over the same period. This contrast underscores the benefits of floating-rate exposure in a rising rate environment.

The fund’s yield, currently 5.8%, stands out compared to the 4.2% yield of the Bloomberg Aggregate Index. While FUSI’s higher yield reflects its focus on higher-yielding sectors like bank loans and non-investment-grade corporate debt, it also carries commensurate risks, such as credit risk from lower-rated issuers.

Distribution Consistency and Portfolio Diversification

FUSI’s monthly distribution of $0.2428 has remained stable for over two years, a testament to its portfolio’s income-generating capacity.

The fund’s multisector approach—allocating across government, corporate, and mortgage-backed securities—provides diversification. As of June 2023, its top sectors included U.S. government (25%), financials (20%), and industrials (15%), with an average credit quality of BBB. This balance helps stabilize income even if certain sectors underperform.

Risks to Consider

While FUSI’s floating-rate focus reduces interest rate risk, it is not immune to broader economic pressures. A recession could strain issuers in lower-rated sectors, potentially leading to defaults. Additionally, the fund’s expense ratio of 0.45%—moderate for an actively managed ETF—could eat into returns in low-yield environments.

Conclusion: A Strategic Income Tool for Rate-Hike Markets

FUSI’s consistent distributions and resilient performance in 2023 make it a viable choice for investors prioritizing steady income while navigating rising rates. Its 5.8% yield, outperformance of broad bond benchmarks, and disciplined risk management by American Century’s team position it as a core holding for income portfolios. However, investors should remain mindful of credit risks and diversify further across other sectors or strategies.

As the Fed continues its rate-hike cycle, FUSI exemplifies how floating-rate ETFs can turn volatility into opportunity—delivering both stability and yield in an uncertain landscape.