MW Here's a better way to invest for income before money-market yields plunge

By Philip van Doorn

This is a good time to expand your horizons to make sure investment income continues to flow if interest rates tumble

You can still earn 4% in a money-market fund. That is an attractive yield for an investment that doesn't have a fluctuating market value. But chances are that money-market rates will fall significantly over the coming months.

That is why professional investors have been loading up on bonds. And it is a reason for you to diversify your investments now if you need a continuing stream of income.

The Franklin Income Focus ETF INCM is an exchange- traded fund that was established in June 2023. That is not a very long performance record, but the fund has already increased in size to $905 million in assets under management.

During an interview with MarketWatch, Todd Brighton, who co-manages INCM, explained that the ETF follows a strategy similar to the long-term investing methodology employed by the Franklin Income Fund, which was launched in 1948 and has $76 billion in assets.

The ETF has some advantages over the older mutual fund, including the ability for investors to trade in or out at any time when the New York Stock Exchange is open. Investors can buy or sell shares of traditional open-ended mutual funds only at the market close on a business day.

The older fund has five share classes, all of which have annual expense ratios higher than INCM's expense ratio of 0.38%. That expense ratio means fees totaling $38 annually for a $10,000 account.

The lowest expenses for the Franklin Income Fund are a net 0.46% for its Advisor share class FRIAX FRIAX and 0.41% for its R6 shares FNCFX, which are distributed through employer-sponsored retirement plans. Those expenses reflect 0.01% fee waivers by Franklin Templeton until at least Jan. 31. The Franklin Income Fund's oldest share class, Class A FKIQX, has a maximum upfront sales charge of 3.75% and an expense ratio of 0.71%.

So the ETF has a more simple structure for investors with no sales charge and lower expenses for similar active management by the same team that runs the Franklin Income Fund.

Interest-rate risk

As bonds' market values rise, their yields fall, and vice versa. Strong demand pushed the yield on 10-year U.S. Treasury notes BX:TMUBMUSD10Y down to 4.05% on Wednesday from 4.58% at the end of 2024. Investors are trying to lock in yields for the long term as they anticipate a slowing economy and lower interest rates.

On Sept. 17, the Federal Open Market Committee cut its target for the federal-funds rate by a quarter point to a range of 4% to 4.25%.

On Tuesday, Federal Reserve Chair Jerome Powell spoke at the annual meeting of the National Association for Business Economics in Philadelphia. He said there were "pretty significant" downside risks to the U.S. labor market. That could help make the case for another cut to the federal-funds rate when the FOMC holds its next two-day policy meeting Oct. 28-29.

None of this is to say that investors can rely on interest rates to move in either direction.

But a strategy of diversifying sources of income can help keep your income steady through shifting market conditions.

A varied approach to income

At the end of September, the Franklin Income Focus ETF's portfolio was allocated with 43% in fixed-income securities (mainly bonds), 34% in equities (mainly common stocks with a small allocation to preferred stocks, according to Brighton), 22% in convertible bonds and equity-linked notes, and the rest in cash.

The fund pays a monthly dividend. Its trailing distribution yield (the past 12 dividends divided by the current share price) is 4.94%, according to FactSet. The fund's total return with dividends reinvested was 7.9% for one year through Tuesday.

The equity-linked notes are used by the fund to employ a covered-call strategy to enhance income. Covered-call options can be used to generate option premium income based on the price movement of individual stocks or stock indexes.

For a simple hypothetical example using an individual stock, let's say you held shares of Company A, and you were happy to continue doing so at the current price of $100 a share. But you would be willing to part with the stock at a price of $110.

Depending on market conditions, you might be able to receive an attractive premium by writing a call option allowing another investor to buy your shares at $110 until the option expires. If the stock rises above $110 (the strike price), the other investor can exercise your option by paying you $110 a share. If the stock doesn't climb to $110 by the expiration date, you will keep your option premium and be free to write another option.

With the covered-call strategy, you give up some upside potential in return for the option premium income. In the above example, you might get "called out" at $110 and then watch the stock shoot much higher.

A well-managed covered-call strategy can help a fund manager smooth out an income stream while providing downside protection. In times of high volatility, option premiums rise. This is why the JPMorgan Equity Premium Income ETF JEPI declined only 3.5% in 2022, while the S&P 500 declined 18.1%. Those figures include reinvested dividends. The option premiums had risen so high that JEPI's trailing distribution yield in January 2023 was 10.53%, while the fund was quoting a 30-day SEC yield of 11.77%.

For much more detail on various covered-call strategies and their advantages and disadvantages, see this article published by MarketWatch on July 30.

"What we are trying to deliver is high current income," Brighton said. "Secondary is prospects for capital appreciation and a better outcome for investors during periods of drawdowns. By using the covered-call strategy, with an enhanced coupon, our [equity-linked] notes tend to have 15% upside."

The covered-call strategy is only one facet of the Franklin Income Focus ETF's strategy.

"This fund is multi-asset, dynamic and capable of looking across markets," Brighton said. While the management team at Franklin typically is focused on "a neutral allocation, 50/50" between stocks and bonds, "we have the ability to lean into asset classes" depending on market conditions, he said.

For example, the Franklin Income Fund, which follows a similar allocation strategy to the Franklin Income Focus ETF, was 75% concentrated in equities in 2021 and 2022, "when fixed income was broadly unattractive," Brighton said. At the end of 2021, the yield on 10-year Treasury notes was 1.51%.

Looking more closely at the Franklin Income Focus ETF's 43% allocation to bonds as of Sept. 30, Brighton said the fund had total exposure of about 20% to high-yield corporate bonds. These are bonds with ratings that are below investment grade.

A bond is considered to be below investment grade if it has a low credit rating, or because the issuer chose not to pay one of the ratings firms to rate its bonds. The two largest credit-rating firms are S&P Global and Moody's Ratings. At S&P, a bond is considered investment grade if it is rated BBB- or higher. At Moody's, the minimum investment-grade rating is Baa3. You can review S&P's ratings hierarchy here and Moody's rating scale here. Fidelity lines up the agencies' ratings next to each other here.

When asked about that exposure in light of the recent bankruptcies, including one discussed by JPMorgan Chase Chief Executive Jamie Dimon on Tuesday, Brighton made clear that the extended team supporting the venerable Franklin Income Fund was fully involved in risk management for the newer ETF.

"We have 60 credit analysts doing deep work on all the companies we own, looking at credit quality, cash-flow generation of the business and capability to pay interest and principal," he said.

Top holdings of INCM

The Franklin Income Focus ETF lists its portfolio holdings daily. On Wednesday, the ETF was 1.9% allocated to U.S. Treasury bonds, with a coupon (a bond's stated interest rate based on its face value) of 4.75% maturing in May 2055.

Nine stocks rounded out the ETF's top 10 holdings:

   Company                             Ticker   Dividend yield  % of Franklin Income Focus ETF 
   Johnson & Johnson                  JNJ                2.72%                           2.54% 
   Chevron Corp.                      CVX                4.49%                           2.11% 
   JPMorgan Chase & Co.               JPM                1.99%                           1.86% 
   Exxon Mobil Corp.                  XOM                3.53%                           1.62% 
   Merck & Co.                        MRK                3.83%                           1.60% 
   Verizon Communications Inc.        VZ                 6.81%                           1.47% 
   PepsiCo Inc.                       PEP                3.75%                           1.38% 
   Procter & Gamble Co.               PG                 2.83%                           1.37% 
   Duke Energy Corp.                  DUK                3.33%                           1.26% 
                                                             Sources: Franklin Templeton, LSEG 

Competing ETFs

MW Here's a better way to invest for income before money-market yields plunge

By Philip van Doorn

This is a good time to expand your horizons to make sure investment income continues to flow if interest rates tumble

You can still earn 4% in a money-market fund. That is an attractive yield for an investment that doesn't have a fluctuating market value. But chances are that money-market rates will fall significantly over the coming months.

That is why professional investors have been loading up on bonds. And it is a reason for you to diversify your investments now if you need a continuing stream of income.

The Franklin Income Focus ETF INCM is an exchange- traded fund that was established in June 2023. That is not a very long performance record, but the fund has already increased in size to $905 million in assets under management.

During an interview with MarketWatch, Todd Brighton, who co-manages INCM, explained that the ETF follows a strategy similar to the long-term investing methodology employed by the Franklin Income Fund, which was launched in 1948 and has $76 billion in assets.

The ETF has some advantages over the older mutual fund, including the ability for investors to trade in or out at any time when the New York Stock Exchange is open. Investors can buy or sell shares of traditional open-ended mutual funds only at the market close on a business day.

The older fund has five share classes, all of which have annual expense ratios higher than INCM's expense ratio of 0.38%. That expense ratio means fees totaling $38 annually for a $10,000 account.

The lowest expenses for the Franklin Income Fund are a net 0.46% for its Advisor share class FRIAX FRIAX and 0.41% for its R6 shares FNCFX, which are distributed through employer-sponsored retirement plans. Those expenses reflect 0.01% fee waivers by Franklin Templeton until at least Jan. 31. The Franklin Income Fund's oldest share class, Class A FKIQX, has a maximum upfront sales charge of 3.75% and an expense ratio of 0.71%.

So the ETF has a more simple structure for investors with no sales charge and lower expenses for similar active management by the same team that runs the Franklin Income Fund.

Interest-rate risk

As bonds' market values rise, their yields fall, and vice versa. Strong demand pushed the yield on 10-year U.S. Treasury notes BX:TMUBMUSD10Y down to 4.05% on Wednesday from 4.58% at the end of 2024. Investors are trying to lock in yields for the long term as they anticipate a slowing economy and lower interest rates.

On Sept. 17, the Federal Open Market Committee cut its target for the federal-funds rate by a quarter point to a range of 4% to 4.25%.

On Tuesday, Federal Reserve Chair Jerome Powell spoke at the annual meeting of the National Association for Business Economics in Philadelphia. He said there were "pretty significant" downside risks to the U.S. labor market. That could help make the case for another cut to the federal-funds rate when the FOMC holds its next two-day policy meeting Oct. 28-29.

None of this is to say that investors can rely on interest rates to move in either direction.

But a strategy of diversifying sources of income can help keep your income steady through shifting market conditions.

A varied approach to income

At the end of September, the Franklin Income Focus ETF's portfolio was allocated with 43% in fixed-income securities (mainly bonds), 34% in equities (mainly common stocks with a small allocation to preferred stocks, according to Brighton), 22% in convertible bonds and equity-linked notes, and the rest in cash.

The fund pays a monthly dividend. Its trailing distribution yield (the past 12 dividends divided by the current share price) is 4.94%, according to FactSet. The fund's total return with dividends reinvested was 7.9% for one year through Tuesday.

The equity-linked notes are used by the fund to employ a covered-call strategy to enhance income. Covered-call options can be used to generate option premium income based on the price movement of individual stocks or stock indexes.

For a simple hypothetical example using an individual stock, let's say you held shares of Company A, and you were happy to continue doing so at the current price of $100 a share. But you would be willing to part with the stock at a price of $110.

Depending on market conditions, you might be able to receive an attractive premium by writing a call option allowing another investor to buy your shares at $110 until the option expires. If the stock rises above $110 (the strike price), the other investor can exercise your option by paying you $110 a share. If the stock doesn't climb to $110 by the expiration date, you will keep your option premium and be free to write another option.

With the covered-call strategy, you give up some upside potential in return for the option premium income. In the above example, you might get "called out" at $110 and then watch the stock shoot much higher.

A well-managed covered-call strategy can help a fund manager smooth out an income stream while providing downside protection. In times of high volatility, option premiums rise. This is why the JPMorgan Equity Premium Income ETF JEPI declined only 3.5% in 2022, while the S&P 500 declined 18.1%. Those figures include reinvested dividends. The option premiums had risen so high that JEPI's trailing distribution yield in January 2023 was 10.53%, while the fund was quoting a 30-day SEC yield of 11.77%.

For much more detail on various covered-call strategies and their advantages and disadvantages, see this article published by MarketWatch on July 30.

"What we are trying to deliver is high current income," Brighton said. "Secondary is prospects for capital appreciation and a better outcome for investors during periods of drawdowns. By using the covered-call strategy, with an enhanced coupon, our [equity-linked] notes tend to have 15% upside."

The covered-call strategy is only one facet of the Franklin Income Focus ETF's strategy.

"This fund is multi-asset, dynamic and capable of looking across markets," Brighton said. While the management team at Franklin typically is focused on "a neutral allocation, 50/50" between stocks and bonds, "we have the ability to lean into asset classes" depending on market conditions, he said.

For example, the Franklin Income Fund, which follows a similar allocation strategy to the Franklin Income Focus ETF, was 75% concentrated in equities in 2021 and 2022, "when fixed income was broadly unattractive," Brighton said. At the end of 2021, the yield on 10-year Treasury notes was 1.51%.

Looking more closely at the Franklin Income Focus ETF's 43% allocation to bonds as of Sept. 30, Brighton said the fund had total exposure of about 20% to high-yield corporate bonds. These are bonds with ratings that are below investment grade.

A bond is considered to be below investment grade if it has a low credit rating, or because the issuer chose not to pay one of the ratings firms to rate its bonds. The two largest credit-rating firms are S&P Global and Moody's Ratings. At S&P, a bond is considered investment grade if it is rated BBB- or higher. At Moody's, the minimum investment-grade rating is Baa3. You can review S&P's ratings hierarchy here and Moody's rating scale here. Fidelity lines up the agencies' ratings next to each other here.

When asked about that exposure in light of the recent bankruptcies, including one discussed by JPMorgan Chase Chief Executive Jamie Dimon on Tuesday, Brighton made clear that the extended team supporting the venerable Franklin Income Fund was fully involved in risk management for the newer ETF.

"We have 60 credit analysts doing deep work on all the companies we own, looking at credit quality, cash-flow generation of the business and capability to pay interest and principal," he said.

Top holdings of INCM

The Franklin Income Focus ETF lists its portfolio holdings daily. On Wednesday, the ETF was 1.9% allocated to U.S. Treasury bonds, with a coupon (a bond's stated interest rate based on its face value) of 4.75% maturing in May 2055.

Nine stocks rounded out the ETF's top 10 holdings:

   Company                             Ticker   Dividend yield  % of Franklin Income Focus ETF 
   Johnson & Johnson                  JNJ                2.72%                           2.54% 
   Chevron Corp.                      CVX                4.49%                           2.11% 
   JPMorgan Chase & Co.               JPM                1.99%                           1.86% 
   Exxon Mobil Corp.                  XOM                3.53%                           1.62% 
   Merck & Co.                        MRK                3.83%                           1.60% 
   Verizon Communications Inc.        VZ                 6.81%                           1.47% 
   PepsiCo Inc.                       PEP                3.75%                           1.38% 
   Procter & Gamble Co.               PG                 2.83%                           1.37% 
   Duke Energy Corp.                  DUK                3.33%                           1.26% 
                                                             Sources: Franklin Templeton, LSEG 

Competing ETFs

(MORE TO FOLLOW) Dow Jones Newswires

October 16, 2025 08:57 ET (12:57 GMT)

MW Here's a better way to invest for income -2-

FactSet lists five exchange-traded funds as peers to the Franklin Income Focus ETF, although these funds follow a variety of strategies. So this list includes those five along with JEPI, which was mentioned above. The Franklin ETF is listed first, followed by the others sorted by assets under management.

   Name                                   Ticker   AUM ($mil)  Trailing distribution yield  Expense ratio  1-year return through Oct. 14  Avg. 3-year return 
   Franklin Income Focus ETF             INCM            $905                        4.94%          0.38%                           7.9%                 N/A 
   JPMorgan Equity Premium Income ETF    JEPI         $35,703                        8.39%          0.35%                           3.5%               12.7% 
   Principal Active High Yield ETF       YLD             $411                        7.25%          0.39%                           6.4%               10.9% 
   Bluemonte Diversified Income ETF      BLUI             $84                          N/A          0.75%                            N/A                 N/A 
   SPDR SSgA Income Allocation ETF       INKM             $72                        4.95%          0.50%                           6.9%               11.1% 
   First Trust Income Opportunities ETF  FCEF             $60                        4.73%          3.29%                           9.9%               15.7% 
   Brookstone Yield ETF                  BAMY             $41                        7.63%          1.46%                          11.3%                 N/A 
                                                                                                                                             Source: FactSet 

The return figures are net of expenses and include reinvested dividends.

Three of the funds are less than three years old. Both INCM and the Brookstone Yield ETF BAMY were established in 2023, while the Bluemonte Diversified Income ETF BLUI was launched in June.

The First Trust Income Opportunities ETF FCEF invests in closed-end funds and in other ETFs, so its expense ratio is high, reflecting its own management fees and those of the other funds that it invests in. The fund also has had the best three-year return of those on the list. Many closed-end funds use leverage as part of their strategies, and reporting rules require them to include interest in borrowings as part of their fund expenses.

Click on the tickers for more about each fund.

Read: Tomi Kilgore's detailed guide to the information available on the MarketWatch quote page

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-Philip van Doorn

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October 16, 2025 08:57 ET (12:57 GMT)

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