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Think Rates Will Rise? These Income ETFs Are Ready

BY | ETF Database
7:00 am ET 10/06/26 | 16 VIEWS
Yields are rising, and so are rates. Markets anticipate one more rate hike from the Federal Reserve to close out 2026. With stubborn inflation and massive borrowing by AI hyperscalers, rates may remain elevated some time to come. While that opens up real opportunities in bonds, retirees or those nearing retirement still need to pay those rising costs. That’s where income ETFs like the American Century Short Duration Strategic Income ETF (SDSI ) come in.Key Takeaways: As yields, interest rates, and inflation remain high, shorter-duration strategies can help. Income ETFs with a short-duration focus can add current income while mitigating risk. SDSI and FUSI both use active approaches to adapt to events and closely scrutinize investments. SDSI and its fellow income ETF, the American Century Ultrashort Income ETF (FUSI C+), offer two shorter-duration income ETFs to consider. The fund charges a 32 basis point fee and hit its three-year ETF milestone last year. Meanwhile, FUSI charges a 19 basis point fee and celebrated its key three-year milestone in March of this year. SDSI actively invests in a broad short-duration debt portfolio, aiming to limit the impact of rising rates. The strategy combines capital appreciation and current income via U.S. government debt, bank loans, collateralized debt, and asset-backed securities. Together, the active income ETF looks to produce an average duration of three years or less. See more: American Century’s Gotelli: What to Know on Munis Amid Yield Highs According to ETF Database data, SDSI returned a solid 5.5% over the last three years. That performance outpaced its ETF Database Total Bond Market category average of 3.2% over the same period. Additionally, SDSI offered a 5.3% 30-day SEC Unsubsidized Yield as of September 30, per American Century Investments. FUSI, meanwhile, aims to offer the same income and capital appreciation by using a sector rotation strategy in the floating rate space. The income ETF invests in CLOs, floating-rate commercial mortgages, and asset-backed securities — with 35% of the portfolio below investment grade. It uses fundamental research and a macroeconomic framework in its investment approach. Like SDSI, FUSI returned 5.5% over the last three years also beating the category average. Per American Century Investments data, the strategy provided a 4.95% 30-day SEC Unsubsidized Yield as of September 30. Together, the pair of active income ETFs may prove appealing as rates are poised to rise again. With rising costs making headlines and impacting wallets, advisors and their clients alike may find good reasons to like SDSI and FUSI. For more news, information, and analysis, visit the Core Strategies Content Hub.

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