What is OACP? (Pros, Cons, and Strategies)
Investing in the bond market is a crucial component of a diversified investment portfolio, particularly for those looking to balance the risk associated with equity investments. One of the relatively new players in this space is the OneAscent Core Plus Bond ETF, commonly known as OACP. This blog post will explore what OACP is, its advantages and disadvantages, and outline effective strategies for investing in this ETF.
What is OACP?
OACP is an exchange-traded fund (ETF) that aims to provide investors with income and capital appreciation by investing in a diversified portfolio of bonds. OneAscent Core Plus Bond ETF seeks to offer a more sustainable investment by aligning investments with the values and objectives of socially-conscious investors.
Key Features of OACP
- Socially-Responsible Investments (SRI): OACP prioritizes investments in bonds that meet certain Socially-Responsible Investment criteria, avoiding bonds from issuers involved in activities such as gambling, tobacco, and weapons manufacturing.
- Broad Bond Market Exposure: OACP invests in a wide array of bonds including government bonds, corporate bonds, and mortgage-backed securities.
- Investment Grade and High Yield: The ETF includes both investment-grade and high-yield bonds, aiming to balance risk and return.
The portfolio is constructed based on rigorous credit analysis and ongoing monitoring to maintain a high standard of credit quality and value alignment.
OACP Composition
OACP includes both U.S. and international bonds, offering a diversified global exposure. The inclusion criteria focus on both investment-grade and high-yield bonds, with an emphasis on issuers who meet specific ethical standards.
Pros of OACP
Socially-Responsible Investing
One of the standout features of OACP is its commitment to Socially-Responsible Investing (SRI). This allows investors to put their money into a fund that aligns with their values, supporting companies that contribute positively to society and the environment.
Diversified Portfolio
OACP offers a diversified portfolio that spreads risk across different types of bonds and issuers. This diversification can help to mitigate the risks associated with investing in a single type of bond or a narrow group of issuers.
Income and Capital Appreciation
With a mix of investment-grade and high-yield bonds, OACP aims to offer both income through interest payments and potential for capital appreciation. This dual objective makes it attractive for both conservative and aggressive investors.
Professional Management
OACP benefits from professional fund management, which involves rigorous credit analysis and ongoing monitoring of the bonds in the portfolio. This professional oversight helps to ensure that the ETF maintains high credit quality and adheres to its investment criteria.
Cons of OACP
Interest Rate Sensitivity
Like most bond ETFs, OACP is sensitive to changes in interest rates. When interest rates rise, bond prices typically fall, which can negatively impact the value of the ETF.
Credit Risk
While OACP invests in a mix of investment-grade and high-yield bonds, the inclusion of higher-risk bonds introduces credit risk. There is always the potential for defaults, which could lead to a loss of principal.
Limited Track Record
As a relatively new ETF, OACP does not have a long performance history. This limited track record can be a drawback for investors looking for an ETF with proven performance over various market cycles.
OACP Investment Strategies
Investing in OACP requires a thoughtful approach to maximize the benefits while mitigating the risks. Here are some strategies to consider.
Long-term Investment Strategy
Given the interest rate sensitivity and credit risk associated with bond ETFs, OACP is best suited for long-term investors. By holding the ETF for an extended period, you can potentially weather the fluctuations in interest rates and credit conditions.
Socially-Responsible Portfolio
If you are committed to Socially-Responsible Investing, OACP can be a cornerstone of your investment portfolio. Combine OACP with other SRI-focused funds and ETFs to create a portfolio that aligns with your ethical values while achieving your financial goals.
Diversification Strategy
OACP can be used to diversify your investment portfolio. Combining OACP with equity ETFs, especially those that focus on dividend growth, can provide a balanced exposure to both income and growth investments.
Income Generation
If generating steady income is your primary goal, OACP's focus on bonds with consistent interest payments can be appealing. Consider reinvesting the income to leverage the compound effect, thus enhancing your long-term returns.
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In summary, OACP is an ETF aimed at investors who want both income and capital appreciation while aligning their investments with socially-responsible values. Its diversified portfolio and professional management offer some compelling advantages. However, like all investments, it comes with risks such as interest rate sensitivity and credit risk. By employing long-term investment and diversification strategies, you can effectively incorporate OACP into your investment plan.