While defensive strategies like Treasury inflation-protected securities (TIPS) are available to investors, another way to beat rate hikes is to simply outpace them with more yield.
“You have all this fear that more rate increases are going to happen at the central bank level, inflation is not going to dissipate and then you’ve got the quantitative tightening that’s coming pretty rapidly,” said Tom di Galoma, managing director at Seaport Global Holdings in New York.
As such, dividends could provide additional income that could generate more yield as rate hikes continue from a hawkish U.S. Federal Reserve. One fund to consider is the Vanguard High Dividend Yield Index Fund ETF Shares (VYM).
Furthermore, dividends are an alternate route to high yield debt with ETFs like VYM. The fund employs an indexing investment approach designed to track the performance of the FTSE High Dividend Yield Index, which consists of common stocks of companies that pay dividends that are generally higher than average.
The advisor attempts to replicate the target index by investing all, or substantially all, of their assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
In summary, VYM:
- Seeks to track the performance of the FTSE® High Dividend Yield Index, which measures the investment return of common stocks of companies characterized by high dividend yields.
- Provides a convenient way to track the performance of stocks that are forecasted to have above-average dividend yields.
- Follows a passively managed, full-replication approach.
An International Dividend Option
Dividends are also available overseas, which can offer more yield if investors are willing to accept more risk. If so, consider the Vanguard International High Dividend Yield ETF (VYMI).
VYMI offers an all-in-one option, allowing investors to navigate the international debt markets without needing to pore over copious amounts of financial data to find the best opportunities. Furthermore, international investing has its own set of nuances, and VYMI can assist with taking out that guesswork.
Overall, VYMI:
- Seeks to track the performance of the FTSE All-World ex US High Dividend Yield Index.
- Provides a convenient way to get exposure to international stocks that are forecasted to have above-average dividend yields.
- Employs a passively managed sampling strategy.
- Has strong performance with a year-to-date gain of 4% and a yield of also 4%.
For more news, information, and strategy, visit the Fixed Income Channel.