Fixed-income investment strategies have been in vogue amidst all the market turmoil, especially through the use of exchange traded funds (ETFs). But now, with indications that the global economy may be safely on its way to recovery, some pundits are saying that fixed-income ETFs are no longer desirable. Is that true?
According to Dave Carpenter of the Associated Press, investors have been increasingly pouring cash into fixed-income ETFs. The added liquidity that ETFs bring to the fixed-income world remains a very appealing place for investors.
Many financial analysts think the fixed-income market has run its course and that “investors need to be in stocks for the long run in order to come out ahead of inflation.” [What You Should Know About Bond ETFs.]
Despite this sentiment, Morningstar ETF strategist Paul Justice thinks an investment strategy with a fixed-income ETF component can still be a good one. He says that a fixed-income strategy can provide liquidity for “money you can get ahold of when you need it.” [Podcast: If You Think Bond ETFs Are Boring, Think Again.]
We agree. Before the advent of fixed-income ETFs, this level of bond exposure would have been costly. These days, you can build a diversified bond portfolio for not a lot of money. [Treasury ETFs Take a Step Back.]
Caution, though: all this money flowing into bonds will be at risk when the Federal Reserve raises rates, reports John Spence for The Wall Street Journal. Long-term bonds could be hit hardest, so have an exit strategy and watch for clues that rates are going up. This doesn’t appear to be an imminent danger.
Currently, there are more than 100 fixed-income ETFs covering everything from corporate bonds to muni bonds to sovereign debt. How can you find them? That’s easy. Visit our ETF Analyzer and select “fixed income” from the drop-down menu and a list will appear like so:
To add a column that sorts each fund by yield, click “add criteria” and check the “dividend yield” box.
For more stories on Treasuries and fixed-income strategies, visit our Treasury category.
For more stories about bonds, visit our bond category.
Sumin Kim contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.