Looking for Fixed Income Alternatives? Consider This Dividend Fund

Despite the Federal Reserve raising interest rates on Monday by 0.25%, institutional investors and analysts are forecasting even more aggressive rate hikes this year that could see interest rates ending the year above 2%, reports the Financial Times.

Goldman Sachs is forecasting that the 10-year yield will hit 2.7% by the end of the year, while Citibank analysts are expecting four 0.50% increases beginning in May and lasting until September.

“Futures volumes are increasing significantly . . . after several Federal Open Market Committee members came out and increased the chances of a 50 basis points rate hike,” Chuck Tomes, portfolio manager at Manulife Investment Management, said.

The rapid changes in yields are being partially attributed to a lower liquid market, which is causing sharper volatility spikes, as well as advisors and investors repositioning their portfolios in advance of the end of the quarter next week. On top of all of this are investors potentially hedging for any shifts that the war in Ukraine could cause over the weekend as global tensions continue to grow.

“Liquidity is extremely tenuous in the market and volatility is extreme,” said Gennadiy Goldberg, rates strategist for TD Securities.

KVLE Offers a Tilt Towards Dividend Yield While Diversifying

Increasing interest rates are driving advisors and investors to consider alternative sources of income as bond allocations continue to experience outflows. One place that advisors are turning to in order to seek income is within dividends and dividend-yielding companies.

The KFA Value Line Dynamic Core Equity Index ETF (KVLE) follows a strategy of investing in higher-yield companies while diversifying in a way that a “theme” portfolio does not. The fund is a core equity portfolio of securities that are tilted to favor dividend yield, and it seeks to increase yield while avoiding investing solely in high-yield sectors and stocks.

KVLE is benchmarked to the 3D/L Value Line Dynamic Core Equity Index and utilizes optimization technology to emphasize securities with solid dividend yields that have the highest rankings in both Value Line Safety and Timeliness. The fund uses a smart beta strategy in seeking more cost-efficient alpha as well as a risk-management strategy that seeks to limit the effects of major market declines while also being positioned to capture positive returns.

KVLE carries an expense ratio of 0.55%.

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