Over the next couple of weeks, you will see that we are making a trade across our Conservative Income Model.
Trade Rationales
Sell: Invesco Senior Loan ETF (Ticker: BKLN)
While BKLN is a newer addition to the portfolio, the recent fallout in the software space has spooked investors about the potential of AI intermediation. BKLN is a senior bank loan product that holds relatively high-quality floating-rate loans. These loans tend to be senior priority in the credit stack and backed by the company’s physical assets. Senior loans are a popular financing source for private equity firms to fund “leveraged buyouts” (LBOs) of software companies. BKLN acts as a major lender to some of the biggest names in enterprise tech. As of February 2026, software-related loans are estimated to represent roughly 15% to 20% of the total portfolio.
Given the recent flare-up in the software sector and relatively tight spreads, we’re exiting the position due to the potential for spillover from further degradation in the software/bank loan sector.
Trim Doubleline Mortgage ETF (Ticker: DMBS)
Mortgages have performed well relative to the Aggregate bond benchmark (Ticker: AGG) since the addition of DMBS to the Conservative Income portfolio. Given the Trump administration’s response regarding housing affordability last month, we see less upside potential for mortgage spreads ahead. The short of the story is the Trump administration is ordering the GSE’s (Fannie & Freddie still under government conservatorship since the GFC era) to purchase $200bn in mortgage products to improve housing affordability and lower mortgage rates. Simply put, given a new incremental buyer in the asset class, we see limited upside from here after a market repricing.
As can be seen in the graphic above, the current spread of mortgage bonds relative to Treasuries is slightly below its ~15-year average. This moves our mortgage exposure to roughly equal weight relative to the AGG benchmark.
Sell: Invesco Financial Preferred ETF (Ticker: PGF)
PGF was a small position in the portfolio we put in place early last year, post the Trump election, in anticipation of substantial bank deregulation. Banks have performed well, which tightened the credit spread of these securities, although the longer duration profile lagged as we got a steeper yield curve, which impacted the interest rate component of the preferred structure. While I think banks could continue to perform relatively strongly, I do think a further steepening of the yield curve and potential spillover from credit products could cause volatility. In the meantime, we are rebalancing the position to a more actively managed credit exposure via DSCO.
Add to VanEck Emerging Market Bond ETF (Ticker: EMBX)
EMBX is an actively managed EM Bond fund that is allocated to both local currency and hard currency EM bonds (roughly 50/50). EMBX has a broader mandate relative to EMB, giving the manager the ability to invest across sovereigns, quasi‑sovereigns, corporates, and both hard‑currency and local‑currency EM debt. This allows for more flexibility in currency and sector allocation across the strategy. While we don’t expect the USD to perform as poorly in ’26 as it has in ’25, this repositioning allows us to slightly reduce USD exposure. We are slightly increasing the exposure.
Initiate DoubleLine Securitized Credit ETF (Ticker: DSCO)
DSCO deploys an actively managed securitized credit product that invests in RMBS, CMBS, CLOs, and ABS. We believe the product has the ability to generate attractive, consistent income from collateral-backed cash flows, not corporate balance sheets. In general, securitized credit is meaningfully underrepresented in Aggregate-oriented benchmarks, creating an opportunity to diversify fixed income portfolios across interest rate, credit, and sector risk factors. The Doubleline team utilizes a bottom-up security selection process and actively allocates across different sectors, vintages, and tranches of securitized credit products. We believe this position will complement the remainder of the position, which will have a slightly shorter duration, as we still expect the curve to steepen in 2026.
Conclusion
As always, we are closely monitoring the market landscape and believe there is prudence in being agile, given the overall high level of market volatility. In saying that, we have been very happy with the way our portfolios have performed.
Thank you for your trust in stewarding your hard-earned capital. An outside-the-box manner of thinking is necessary to navigate the challenging market landscape we face.
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