Getting alternate exposure to other sources of yield is a must for fixed income investors in today’s market environment where inflation is rampant.
The Federal Reserve is looking to push interest rates higher amid inflation moving at its fastest rate in the past four decades. This is especially disconcerting to bond investors who are seeing their fixed income source erode as rates increase.
“Inflation jumped at its fastest pace in nearly 40 years last month, a 7% spike from a year earlier that is increasing household expenses, eating into wage gains and heaping pressure on President Joe Biden and the Federal Reserve to address what has become the biggest threat to the U.S. economy,” an AP News article reports.
Meanwhile, rising prices continue to put pressure on consumers looking to purchase goods as the world continues to grapple with the pandemic.
“Prices rose sharply in 2021 for cars, gas, food and furniture as part of a rapid recovery from the pandemic recession,” the AP News report adds. “Vast infusions of government aid and ultra-low interest rates helped spur demand for goods, while vaccinations gave people confidence to dine out and travel.”
A Fund of Funds
All this said, it’s imperative for fixed income investors to extract maximum yield. With a 30-day SEC yield of almost 7% (as of January 18, 2022), the Invesco CEF Income Composite ETF (PCEF) presents an intriguing option.
The fund is based on the S-Network Composite Closed-End Fund IndexSM. The fund will normally invest at least 90% of its total assets in securities of funds included in the index, which isn’t the run-of-the-mill ETF that incorporates holdings that mirror the index.
Instead, the ETF holds other funds or, quite simply, is a “fund of funds.” The index currently includes closed-end funds that invest in taxable investment-grade fixed income securities, taxable high-yield fixed income securities, and others that utilize an equity option writing (selling) strategy.
“This ETF is one of the more unique offerings within the ETP lineup, offering exposure to a basket of closed-end funds that invest in various types of fixed income securities,” an ETF Database analysis says. “Unlike ETFs, closed-end funds often trade at a premium or discount to their NAV, introducing both another risk factor and an opportunity to enhance current returns.”
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