Stocks and bonds have been seeing eye-to-eye as of late, but unfortunately, that’s been on the way down. However, for fixed income seekers, yields have been going the opposite direction, opening up opportunities for high yield exchange traded funds (ETFs).
Yields have been moving higher amid rising inflation, but what goes up must eventually come down. If yields were to fall, this could pave the way for fixed income investors to pour capital into stocks that pay dividends and offer growth opportunities.
“The soaring yield on 10-year Treasury debt looks as if it might have hit its high point, or be close to it,” a Barron’s report noted. “If that is true, both growth stocks and dividend-paying names would benefit.”
“Dividend stocks stand to gain because lower yields on bonds, an alternative investment for people seeking income, make the shares relatively more attractive,” the report added. “Growth stocks, meanwhile, are valued highly because investors expect them to pump out increasing profits for years to come. When yields on long-dated debt rise, the current, discounted value of those future earnings falls, reducing what investors are willing to pay.”
A High Income Option
Fixed income investors looking to reach for the skies when it comes to high-yielding income may want to look at the Amplify High Income ETF (YYY). YYY consists of a portfolio of 45 closed-end funds (CEFs) based on a rules-based index.
The ISE High Income Index selects CEFs ranked highest overall by ISE in the following factors: yield, discount to Net Asset Value (NAV), and liquidity. This investment approach results in a portfolio which contains a variety of asset classes, investment strategies, and asset managers.
The fund offers:
- Distribution potential: YYY seeks to pay a high level of current income on a monthly basis.
- Appreciation potential: Purchasing shares of CEFs below net asset value, also referred to as a discount, may provide potential for appreciation.
- Diversification: YYY holds 45 CEFs diversified by asset class and CEF issuers.
- A 30-day SEC yield of 8.72% as of April 30.
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