Gain Tactical High Yield Exposure With DFHY | ETF Trends

It’s been a challenging year for investors, with high inflation, the Federal Reserve aggressively raising interest rates, and war in Ukraine driving volatility in both stock and bond markets. In particular, fixed income markets have been especially battered in 2022, with some forecasting it as perhaps being the worst year for bonds ever. But there’s a silver lining, especially for high yield bonds.

Typically, high yield bonds have been less interest rate-sensitive than higher-quality fixed income asset classes and not as volatile as dividend-paying stocks. Yields on these bonds have nearly doubled from where they were at the end of last year, making them an appealing asset class to consider for investors looking for income amid a possible recession on the horizon.

But the asset is obviously not without risk. When investing in high yield, defaults are a key concern. Fitch Ratings forecasts that U.S. high yield defaults will hit 2.5% to 3.5% next year. And while that’s below the average 10.2% during recessions since the early 2000s, it’s still up from the ratings agency’s previous forecast of 1.25% to 1.75%.

For fixed income investors looking to take advantage of high yields while mitigating their downside exposure, the Donoghue Forlines Tactical High Yield ETF (DFHY) may be worth checking out. DFHY seeks to participate in the high yield bond market, which offers generally high coupon rates to potentially provide a high level of current income. It does this by seeking to provide investment results that correspond to the performance of the FCF Tactical High Yield Index.

The fund aims to capture most of the upside and avoid the majority of the downside of the high yield asset class during a full credit market cycle. It uses defensive tactical indicators to mitigate downside volatility and preserve capital by shifting primarily towards intermediate-term Treasury exposure during market declines.

For more news, information, and analysis, visit the Free Cash Flow Channel.