What is CVY? (Pros, Cons, and Strategies)

Investors looking for diversified income-generation opportunities often turn to multi-asset income ETFs like CVY. Whether you're preparing for retirement or seeking a steady income stream, CVY offers a compelling option. Today's blog post will delve into what CVY is, along with its key features, advantages, disadvantages, and various investment strategies.

What is CVY?

CVY stands for the Invesco Zacks Multi-Asset Income ETF. It is an exchange-traded fund that aims to provide diversified income by investing across multiple asset classes, including stocks, bonds, preferred securities, and REITs.

CVY seeks to replicate the performance of the Zacks Multi-Asset Income Index. This index prioritizes assets with high income potential and maintains a broad diversification across sectors and types of securities to mitigate risks.

Key Features of CVY

• Multi-Asset Exposure: CVY includes various asset classes such as equities, preferred stocks, convertible securities, REITs (Real Estate Investment Trusts), and master limited partnerships (MLPs).
• High Yield Focus: It aims to invest in high-yielding securities, providing robust income potential.
• Diversified Income: Spread risk across multiple sectors and asset types, reducing the impact of underperformance in any single category.

CVY Composition

CVY's portfolio is diverse, including a mix of high-yield stocks, bonds, REITs, and other income-generating assets. Some well-known holdings in the ETF may include companies like AT&T (T), Exxon Mobil (XOM), and various preferred shares and income-focused securities. This diversity ensures that CVY can provide multiple income streams and reduce the risk associated with a concentrated investment.

Pros of CVY

High Income Potential

One of the main attractions of CVY is its high income potential. The ETF focuses on high-yielding securities, which makes it ideal for investors looking for regular income. With its diversified exposure, CVY offers a balanced yield from multiple sources, providing income regardless of market conditions.

Asset Diversification

CVY offers broad diversification across various asset classes, sectors, and types of income-generating securities. This diversified approach spreads risk and can potentially offer a more stable income stream compared to ETFs focusing mainly on equities.

Steady Income Stream

Investors can expect a steady income stream through CVY's quarterly dividend distributions. This is particularly appealing for retirees or those needing regular income payouts.

Cons of CVY

Higher Expense Ratio

CVY has a higher expense ratio compared to some other income-focused ETFs. The fee for CVY stands at around 0.85%, which can eat into overall returns over the long term, especially when compared to low-cost ETFs like SCHD.

Exposure to Riskier Assets

With its inclusion of high-yield bonds, REITs, and other income-focused securities, CVY carries higher risk compared to more conservative investments. Yields may be higher, but there's also a greater potential for capital loss, especially during market downturns.

Interest Rate Sensitivity

Many of the assets in CVY, such as bonds and REITs, are sensitive to interest rate changes. Rising rates can negatively impact the prices of these securities, reducing the overall value of the ETF.

CVY Investment Strategies

While CVY might not be suitable for everyone, it offers several robust investment strategies for those focusing on income generation and diversification.

Long-term Income Strategy

For investors with a long-term horizon, CVY can be part of a diversified portfolio aimed at generating regular income. Given its multi-asset approach and high-yield focus, it can act as a solid foundation for those who prioritize income over capital appreciation.

Complementary Diversification Strategy

CVY can serve as a complementary ETF in a diversified investment portfolio. While other ETFs like SCHD focus on dividend-paying equity, CVY brings in a mix of income-generating securities. Combining CVY with equity-focused ETFs can enhance income and spread risk.

Dividend Reinvestment Strategy

Investors can use dividend reinvestment plans (DRIPs) to compound their returns over time. By reinvesting dividends into more shares, investors can benefit from the magic of compounding, gradually increasing their income stream and capital base.

Interest Rate Risk Management

Given its sensitivity to interest rates, investors should monitor the interest rate environment closely. In a rising rate scenario, it might be prudent to limit exposure to assets like high-yield bonds and REITs, or consider tactical adjustments within the portfolio to manage this risk.

Conclusion

CVY offers a diversified approach to income generation, making it a valuable investment for those prioritizing regular income and stable yields. While it comes with higher fees and risks, its diversified multi-asset strategy can counterbalance these drawbacks. By understanding the pros and cons and employing suitable investment strategies, CVY can be a worthwhile addition to your income-focused portfolio.