Fixed Income Exposure Is Still a Must in Today’s Market

Yield seekers have seen better days with metrics like the Bloomberg Barclays Global-Aggregate Total Return Index Value Unhedged coming in at 0.63% month-to-date. The coronavirus pandemic is certainly to blame as investors dove into bonds for safety, but even as yields are at record lows, fixed income exposure is still a must.

“Despite the recent volatility in the bond market, I believe that the fixed income sleeve of a portfolio continues to be viewed as the “safe” part of the portfolio,” said Jamie West, CFA, Senior Analyst at Nasdaq Dorsey Wright, in a Nasdaq article. “Advisors with clients who require a steady stream of income from their portfolios, have traditionally relied on fixed income to generate a large portion of that income.”

“However, over the last decade yields have fallen fairly consistently and as a result, many investors have had to take on additional risk to meet their income needs,” said West. “The exact form that risk takes varies, some investors have taken on credit risk by allocating more to high yield, taken on additional duration, or increased their equity exposure by investing more in high dividend stocks. The net effect is that most portfolios and fixed income allocations have gotten riskier and may also be producing less income at the same time. Unfortunately, the people taking on this risk are typically older clients who, all else equal, are least able to bear it.”

Consumers looking to borrow cheap money have to like the low rates in today’s environment, but for the fixed income investor, not so much. However, just because yields are at record lows, it doesn’t mean that investors should avoid bonds completely.

Inflation can be a bond investor’s worst enemy as the prices of goods or services rises, it eats into their fixed income return. However, even with the government stimulus packages and the Federal Reserve pumping money into the economy with asset purchases, market experts don’t foresee this playing out in favor of inflation.

A Fixed Income ETF for Yield Seekers

For fixed income investors seeking yield, they can look to the Principal Active Income ETF (YLD). YLD is an actively managed fund that seeks to achieve its investment objective by investing its assets in investment grade and non-investment grade fixed income securities and in equity securities.

The fund’s Sub-Advisors, actively and tactically allocates the fund’s assets among fixed income securities and equity securities in an effort to take advantage of changing economic conditions that the Advisor believes favors one asset class over another.

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