American Century Multisector Floating Income ETF (FUSI)

The American Century Multisector Floating Income ETF (FUSI) invests in bonds and loans whose interest payments float with market rates, moving up and down as the cost of borrowing changes. For an investor worried that holding fixed-rate bonds today locks in low income if rates rise further, FUSI offers an alternative: own instruments where the coupon adjusts every few months, so your income stream keeps pace with a rising-rate environment.

The mechanics are straightforward but worth understanding. A typical corporate bond has a fixed coupon — say, 4.5 percent annually. The bondholder collects 4.5 percent for the life of the bond, no matter what happens to market interest rates. A floating-rate bond, by contrast, has a coupon that resets periodically (often quarterly) to some reference rate — typically a short-term benchmark like the three-month SOFR (Secured Overnight Financing Rate) — plus a fixed spread that compensates for the issuer’s credit risk. If SOFR is 4 percent and the spread is 2 percent, the coupon is 6 percent that quarter. If rates fall and SOFR drops to 3 percent, the coupon falls to 5 percent. If SOFR rises to 5 percent, the coupon rises to 7 percent.

That feature makes floating-rate instruments appealing in a rising-rate environment. When the Federal Reserve is hiking interest rates, the yield on your floating-rate holding climbs with it, maintaining your real income. A fixed-rate bond holder, by contrast, sees the market value of their bond fall (because new bonds are being issued with higher coupons), and the income they collect stays locked at the old level. It is, in essence, a hedge against the kind of monetary tightening that hurts traditional bond investors.

FUSI holds a mix of floating-rate corporate bonds and floating-rate bank loans from companies across various sectors — industrials, financials, technology, healthcare. The composition reflects the breadth of the high-yield and investment-grade floating-rate market. Because floating-rate instruments reset frequently, they carry very short effective duration, meaning interest-rate moves do not significantly damage or boost their principal value. The trade-off is that the issuer’s credit quality becomes the main source of return variation. If a company faces financial trouble, its floating-rate bonds lose value as its credit spread widens. A broad portfolio like FUSI mitigates that risk through diversification, but credit selection remains the active ingredient.

The fund operates across the full quality spectrum: investment-grade floating-rate notes from financially strong companies, and higher-yield floating-rate loans from riskier borrowers with better return potential. That heterogeneity means FUSI carries more credit risk than a Treasury-focused fund would, but substantially less than a pure junk-bond fund. The loans portion — syndicated bank loans extended to corporate borrowers — add another dimension: banks originate the loan, then sell pieces to multiple lenders (including funds like FUSI). These loans usually carry protective covenants that give lenders rights to information and a say in major company decisions, tools not available to pure bond holders.

Over a full market cycle, the appeal of floating-rate instruments lies in their flexibility. In a rising-rate regime, they rally relative to fixed-rate bonds because the income they pay keeps climbing. In a falling-rate regime, they underperform because their income shrinks, but they preserve principal. A traditional bond fund, by contrast, tends to benefit in a falling-rate environment (older, higher-coupon bonds become scarcer and more valuable) but struggles when rates are rising. For an investor uncertain which direction rates will move, or one who believes rates will eventually fall from current levels, mixing floaters with fixed-rate bonds provides a form of optionality.

The expense ratio covers the management and ongoing trading costs in the floating-rate market, which is less transparent and more actively managed than the Treasury market. The fund distributes income monthly or more frequently, so holders receive cash distributions regularly as coupons reset and the underlying instruments pay. Liquidity in individual floating-rate bonds and loans can be lower than in plain vanilla fixed-rate bonds, but a large ETF aggregates enough holdings to trade smoothly during normal market conditions.

FUSI suits investors expecting rising interest rates or uncertain about the direction of rates and seeking exposure to floating-rate income to dampen duration risk. It works well as a complement to a traditional fixed-rate bond fund, or as the core fixed-income holding for someone with a rising-rate outlook. The main risks are credit risk (the bonds and loans in the portfolio can default) and spread risk (credit spreads can widen even if rates move as expected, hurting returns). Floating-rate instruments also carry reinvestment risk — the income resets to prevailing rates, which could be lower if the market environment deteriorates.

To evaluate FUSI, start with its prospectus and current holdings list. Review the credit-quality distribution and the sectors represented. Look at the weighted-average life of the loans and bonds — longer-maturity instruments have more credit risk. Compare FUSI’s current yield and duration to a traditional fixed-rate bond fund, and ask how much income you are giving up in exchange for the rising-rate hedge. Monitor credit conditions: widening spreads and rising default rates can hurt even a floating-rate portfolio if credit quality declines.