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

In today's volatile financial landscape, the quest for reliable and steady income has led many investors to explore fixed-income funds. One such option is the RiverFront Strategic Income Fund, or RIGS. This fund aims to provide a diversified source of income while managing risk. However, as with any investment, it comes with its unique set of pros and cons. Let's delve into what RIGS is, its features, advantages, and the strategies for investing in it.

What is RIGS?

RIGS stands for RiverFront Strategic Income Fund. It's a dynamically managed fund that aims to provide a high level of current income and overall total return. The fund seeks to balance risk and reward by investing in a mix of fixed-income securities, including U.S. and international bonds, both corporate and government, as well as mortgage-backed securities and other income-producing assets.

Key Features of RIGS

• Active Management: Unlike passive ETFs that track an index, RIGS is actively managed. The fund managers use a combination of economic analysis, bond market valuations, and credit risk assessments to make investment decisions.
• Global Diversification: The fund invests in a broad array of fixed-income securities from around the world to capitalize on diverse opportunities.
• Yield-Focused: RIGS aims to generate a higher yield compared to standard bond funds, making it suitable for income-focused investors.

RIGS Composition

RIGS includes a diversified portfolio of bonds from various sectors and geographic regions. It holds U.S. corporate bonds, international sovereign bonds, and emerging market bonds among others. This composition helps mitigate the risks associated with any single bond market or economic cycle.

Pros of RIGS

Diversification

One of the key advantages of RIGS is its global diversification. By investing in a wide range of fixed-income securities across different sectors and countries, RIGS reduces the risk inherent in any single market or geographic region. This helps to stabilize returns and reduce volatility.

Higher Yield Potential

RIGS has a higher yield potential compared to traditional bond funds. This makes it appealing for those looking for income generation. The active management strategy seeks to identify higher-yielding securities while managing credit risk, offering a better return on investment.

Active Management

The active management approach allows the fund to adapt to changing economic conditions and bond market dynamics. The fund managers have the flexibility to adjust the portfolio in response to market developments, which can enhance performance and manage risks more effectively.

Monthly Distributions

RIGS provides monthly income distributions, making it an attractive option for income-focused investors. These regular payouts can be beneficial for retirees or those who need a steady income stream.

Cons of RIGS

Higher Expense Ratio

Active management usually comes with higher costs compared to passive funds. RIGS has a higher expense ratio due to the active management strategy and broader investment scope. Over the long term, these fees can erode the net returns.

Interest Rate Sensitivity

As with most fixed-income funds, RIGS is sensitive to interest rate changes. Rising interest rates can lead to declining bond prices, negatively impacting the NAV (Net Asset Value) of the fund. This is a risk that income-focused investors need to be aware of.

Credit Risk

While the fund aims to manage credit risk, the pursuit of higher yields can expose investors to higher-risk securities, including those from emerging markets. This increases the potential for default and capital loss.

RIGS Investment Strategies

RIGS offers a balanced approach to fixed-income investing, blending the pursuit of yield with risk management. Here are some strategies to optimize your investment in RIGS:

Long-term Investment Strategy

RIGS is well-suited for long-term investors who can withstand short-term volatility in exchange for potentially higher yields. Over time, the benefits of diversification and active management can lead to more consistent income and total returns.

Diversify Your Portfolio

To mitigate risks, consider making RIGS a part of a diversified investment portfolio rather than the sole focus. Combining RIGS with equities, real estate, or other asset classes can provide better risk-adjusted returns.

Regular Monitoring

Given that RIGS is an actively managed fund, it's important to regularly monitor the fund's performance and the economic conditions that could affect it. Staying updated on the fund manager's strategies and market outlook can help in making timely investment decisions.

Reinvest Distributions

To maximize the compound effect, consider reinvesting the monthly income distributions rather than taking them as cash. This can help grow your investment over time, particularly in tax-advantaged accounts like IRAs.

Conclusion

RIGS offers a compelling option for investors seeking income through a diversified blend of fixed-income securities. Its active management and global reach can provide higher yields, albeit with higher fees and risks. With a well-thought-out strategy, RIGS can be a valuable component of a balanced, income-focused investment portfolio. Always consider your risk tolerance, investment horizon, and financial goals before investing.