In this episode, Brad sits down with Eric Lutton, CIO of Sound Income Strategies, to discuss the firm’s actively managed ETF: FXED, and its unique approach to fixed income investing.Eric shares his professional journey from trading in the pits of Chicago to managing institutional assets and ultimately building out Sound Income’s fixed income platform. The firm has grown from managing $30M with one advisor to nearly $4B with over 100 advisors, all through organic growth. At the core of their approach is a clear focus on income generation—particularly for retirees and conservative investors looking to preserve capital and generate steady cash flow.Eric explains that FXED was created to solve two problems: making the firm’s core-plus fixed income strategy available to smaller accounts and addressing the lack of fixed income ETFs that combine traditional bonds with higher-yielding alternatives like BDCs, REITs, preferreds, and non-core bond ETFs.He outlines how the portfolio targets around 70-75% fixed coupon instruments and layers in non-traditional income-generating securities—especially those with lower correlation to investment grade bonds—to deliver better risk-adjusted returns than broad benchmarks like the Agg. He discusses their bottom-up selection process, focus on management quality in BDCs and REITs, and commitment to avoiding names with poor underwriting or operational risks.FXED is actively managed to allow dynamic rebalancing between investment-grade and high-yield allocations depending on market conditions. Eric makes the case that active management in fixed income still has an edge—unlike equities, where alpha is increasingly hard to find. The fund aims to outperform by overweighting stronger names and avoiding the losers—something passive indexes can’t do.He emphasizes that FXED is especially useful for retirees or near-retirees who need reliable income and want to avoid relying too heavily on equities for yield. With a target yield in the upper 6% range, the fund allows for reduced capital commitment to fixed income, freeing up room for growth investments or risk-free cash buffers elsewhere in the portfolio.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and Eric Lutton covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
What we're trying to say is, all right, if this client has a target return, let's say their need is 6%. Well, if they were to pick up the Ag or a traditional investment grade bond fund, they're not going to get 6% yield. I'm, you know, I'm free with the Ag is yielding right now, pretty low to unless it's who's up together. That's how much I follow it now because we're focused on a little more growth than that, but that's, that a lot of those traditional funds aren't going to meet that need.
So, here's an opportunity where we're adding more yield and since they're lower correlated, you know, the higher risk of just to return. So, we fill that's what's adding value to the portfolio versus just fine as you put out, as you said the act.
Market Context and Positioning
So, that's when we launched it. So, what makes it, what gives it that your strategy, the uniqueness? I mean, it looks like you're blending traditional core bond fixed income with other things, like BDC's reads, preferred, some other specialty bond ETF. So, like, what's the thinking behind that structure? And what makes this way of investing in fixed income a little bit more advantageous than just going out and buying, you know, the Ag?
There are times, or I was like, you know, I'd love to go sitting 30% cash right now and go play golf because this is just going to get bad, but you have to understand, someone's using fixed and using that strategy, they're getting a dividend every two weeks. So, what happens if I have to have a cash balance and I do not want to cut that dividend? It's better to look at the best companies we can invest in during that time because we need to stay fully invested and people just have to understand, there's going to be some level downside risk.
So I've had a few positions down here, private bank, running their fixed income and helping out with equities and then an RIA hedge fund and then actually did a stint on the sell side after 08 selling, helping RIAs out with their fixed income needs. So building portfolio, selling bonds, trading bonds for them. And over 10 years ago, mutual friend put me in contact with Fave Strand, who's the principal of sounding income strategies. Brian Matt now and Dave wanted to start an RIA.
So, that's not a horrible thing. Obviously, we want to see the leverage stake fairly low. I'm in good managers, usually keep it pretty low. And then with the rates, you're dealing with 11, 12 different sectors and equity rates. I don't go into mortgage rates, because now I'm betting on how good as management, playing the trade spread game. In other words, we'll borrow an X and we're going to buy more each paper at Y. And you're always trying to guess, as management good at that spread game.
Notable Insights
"So that's why I was introduced to derivative instruments and kind of a fast-paced crowd."
"And what makes this way of investing in fixed income a little bit more advantageous than just going out and buying, you know, the Ag?"
Key Takeaways
- With a target yield in the upper 6% range, the fund allows for reduced capital commitment to fixed income, freeing up room for growth investments or risk-free cash buffers elsewhere in the portfolio.
- The conversation explores important themes in income investing relevant to today's advisor landscape.
- The conversation explores important themes in alternatives relevant to today's advisor landscape.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with Eric Lutton highlights important considerations around fixed income. Understanding the strategy behind each fund—not just the ticker—helps advisors make more informed allocation decisions and better communicate the rationale to clients.
The themes of fixed income and income investing discussed in this episode are particularly relevant in the current market environment, where advisors are increasingly looking for differentiated solutions that go beyond traditional benchmarks.
Listen to the Full Episode
This article is based on an episode of Behind the Ticker, hosted by Brad Roth, Founder and CIO of THOR Financial Technologies. For the full conversation with Eric Lutton, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.