Fixed income securities provide investors with a steady stream of fixed or variable periodic interest payments and the eventual return of principal upon maturity. These types of investments are popular among investors who prefer a more conservative approach to investing. However, navigating the fixed income investment landscape can be complex, and there are significant differences between publicly traded fixed income sub-asset classes.
For passive ETFs tracking these securities, this can pose some challenges. The underlying securities in fixed income ETFs can be subject to price swings, which can cause the ETFs to deviate from their underlying indexes. Additionally, these ETFs can have higher expenses, which can eat into returns. For fixed income investors looking for yield, it may make sense for some to consider actively managed funds instead.
While returns from fixed-income mutual funds are non-linear due to their mark-to-market nature, long-term investment in these funds can provide a steady stream of income for investors. However, it is important to note that these funds can be subject to interest rate risk and credit risk, which can affect their returns.