“I think the biggest thing is to think about bonds as we’ve always thought about them as risk reducers and not return enhancers,” Ervin said. “Now, everything’s kind of flipped where bonds are really that risk enhancer and not really a reason, you know, if anything a return reducer.”
Consequently, Ervin argued that investors looking for alternatives should focus on stability and conservative bets that show low correlation to traditional assets.
For example, the actively managed Reality Shares DIVS ETF (NYSEArca: DIVY) is a good alternative for a conservative fixed-income position in a changing market environment. DIVY tries to provide exposure to the growth rate of expected dividends and looks to deliver long-term capital appreciation rather than income and yield through options contracts and dividend swaps.
“The institutional markets had been investing in this market called dividend swap where they capture the growth rate of dividends on the S&P without any of the interest rate volatility, none of the correlation that you might find otherwise,” Ervin said.