How LODI Provides Value in a "Stagflation Light" Environment
LOI is an actively managed ETF. It's sub-advised by SLC Fixed Income, an affiliate company of ours here at AAM. They have a vast amount of experience in managing different types of fixed income portfolios, with well over $140 billion in assets under management. The value that this particular strategy of theirs provides in this environment, what we call a stagflation-light environment, is its fundamental bond-picking strategy.
Regarding interest rates, LOI seeks to stay duration-neutral to its benchmark. Typically, its duration tends to hover anywhere from one and a half to two years, so definitely on the lower end of the duration spectrum.
The primary value-add from that strategy typically comes from that security selection process and the ability for the portfolio managers to stay unconstrained from a sector standpoint, where they can invest in other security types outside of just your typical corporate credit sectors. Think asset-backed securities, commercial mortgage-backed securities, and collateralized loan obligations, also known as CLOs.
Right now, these sectors are a bulk of the portfolio, and the managers have been taking profits where necessary and then redeploying that capital into higher-quality securities within those particular sectors. That's how we feel that the strategy is really able to navigate both sides of the current environment.
