The search for yields has intensified.
Investors are turning to alternative securities for earnings as inflation concerns rise and treasury yields are relatively low – and some may be worth considering, market analysts say.
These include short-term inflation-protected securities, which mature quickly and help reduce the risk of raising interest rates, and convertible securities, often bonds or preferred stocks that investors can convert into the company’s general stock at any time, in American Century. Rosenberg told CNBC’s “ETF Edge” this week.
Through short-term investments, “you eliminate the potential credit risk of long-term inflation-protected securities,” Rosenberg said, head and senior vice president of his firm’s exchange-traded fund.
“When you own convertible securities, you get a little more yield – allowed, it’s not so much – and in addition, you get a little less volatility when rates start to rise or as inflation comes.” He said in an interview on Monday.
Rosenberg said actively managed ETFs can also come in handy in an inflationary environment because managers can shine during volatility and generate high yields over time.
Rosenberg said American Century’s new multi-sector income ETF (MUSI) aims at short-term, high yields and active management under one roof, including investment-grade bonds and a portfolio of other debt-ridden vehicles. It has been less than a tenth of 1% since its launch in July.
Many investors are choosing a strategy similar to the broad fixed income index of the American Century because they realize it could be selective, ETF Trends CEO Tom Leiden said in the same interview.
“Not all components of this fixed income index are created equal,” Leiden said. “What Ed is saying about Active is going to be really important and critical. And since they’re proposing these kinds of strategies lately and they tend to get smaller, you’re getting some of their best ideas.”
Leiden said investors and advisers are moving away from allocating 60-40 stock-bond portfolios, and towards 70-30 or even 80-20, alternative income strategies also have a moment.
He highlighted covered call strategies such as JPMorgan’s Equity Premium Income ETF (JEPI), Nationwide Risk-Managed Income ETF (NUSI) and Global X’s NASDAQ 100 Covered Call ETF (QYLD).
Both JEPI and NUSI yield about 8% while QYLD yields about 12%.
“It’s something that can replace current equity exposure and also give you the yield you’re looking for,” Leiden said.