Why FUSI Is the Smart Play in a Rising Rate World

As the Federal Reserve's tightening cycle continues to reshape the fixed-income landscape, investors face a critical dilemma: how to preserve capital while generating income in an environment where bond prices are under pressure. Enter the American Century Multisector Floating Income ETF (FUSI), a fund engineered to thrive in precisely these conditions. By combining floating-rate exposure, high-credit-quality securities, and an ultrashort duration strategy, FUSI offers a compelling defense against rising rates while maintaining an attractive income stream. Here's why it deserves a place in your portfolio today.

The Floating-Rate Advantage: Mitigating Rate Risk

The core of FUSI's strategy lies in its 80% allocation to floating-rate securities, which include collateralized loan obligations (CLOs), commercial mortgage-backed securities (CMBS), and Treasury floating rate notes (FRNs). Unlike traditional fixed-rate bonds, these instruments adjust their interest payments as short-term rates rise, shielding the portfolio from price declines caused by rate hikes.

This dynamic is critical in 2025, where the Fed's path remains uncertain but the consensus leans toward further tightening. FUSI's floating-rate tilt ensures its income potential rises alongside rates, a stark contrast to traditional bonds that lose value in this scenario.

Monthly Distributions Reinforce Income Stability
FUSI's $0.2423 monthly distribution (as of June 2025) underscores its focus on steady cash flow. With a trailing dividend yield of 5.88%—0.7 percentage points above its category average—the fund caters to income-seeking investors without overexposure to equity risk.

High-Credit-Quality Construction: Balancing Yield and Safety

While floating-rate instruments are central to FUSI's strategy, its credit quality is equally compelling. The fund prioritizes investment-grade securities, with no more than 35% allocated to below-investment-grade assets. This conservative tilt minimizes default risk, a critical safeguard in an economy where corporate debt stresses could emerge.

The portfolio's short duration—implied by its Ultrashort Bond classification—further insulates it from interest rate volatility. With an average maturity profile likely under one year (as per its category norms), FUSI's price sensitivity to rate changes is inherently low.

Diversification Across Sectors and Regions
FUSI avoids concentration risks by spreading its holdings across 114 securities, with the top 10 representing just 24.7% of assets. Geographically, 94% of the portfolio is in domestic bonds, reducing foreign currency and geopolitical risks. The inclusion of structured credit instruments like CLOs and CMBS also diversifies income streams without sacrificing liquidity.

Outperforming in a Challenging Market

Recent performance validates FUSI's defensive design. Over the past year, the fund delivered a 5.9% return, earning an A grade from Morningstar for its category-beating performance. Even in volatile months like April 2025, FUSI's 0.3% gain outpaced the Ultrashort Bond category's 0.2%.

Why Act Now?

The combination of rising rates, income demand, and Fed uncertainty creates a perfect storm for defensive fixed-income strategies. FUSI's three-pronged approach—floating-rate exposure, high credit quality, and ultrashort duration—positions it to capitalize on this environment:

1. Rate-Hike Resilience: Floating rates ensure income grows as rates rise.
2. Capital Preservation: Investment-grade focus and short duration limit downside risk.
3. Liquidity and Accessibility: As an ETF, FUSI offers tradable shares and transparency.

Risks to Consider

No investment is without risk. FUSI's up-to-35% allocation to lower-rated securities introduces some credit risk, though this is mitigated by active management. The fund's high turnover (98%) also implies higher transaction costs, which could eat into returns over time. However, in a dynamic rate environment, frequent rebalancing is a strategic necessity.

Conclusion: A Defensive Cornerstone for 2025 and Beyond

In a world where fixed-income investors are caught between rising rates and stagnant yields, FUSI stands out as a strategic solution. Its blend of floating-rate instruments, high-credit quality, and monthly income makes it a must-consider holding for portfolios seeking stability and growth. With the Fed's path still unclear, now is the time to act—before the next rate hike leaves you scrambling.

Final Call to Action:
Buy FUSI now to lock in income, protect capital, and position yourself for the Fed's next move.

Disclaimer: Past performance does not guarantee future results. Always conduct your own research or consult a financial advisor before making investment decisions.