The dividend yield on the S&P 500 is a mere 1.56%, and bond yields are rising because prices are falling, which is by no means an appealing scenario. Income investors are dealing with an array of challenges this year, and 2022 has proven to be an ideal time to evaluate alternative and unique strategies. Enter the VanEck Dynamic High Income ETF (NYSE Arca: INC).
INC is fresh on the income-generating ETF scene, having debuted on November 1, but the emphasis should be on relevance, not age, and INC is indeed relevant. The rookie fund employs an “ETF of ETFs” approach to deliver exposure to various high-income asset classes.
“The high income sector of the market is attractively priced as valuations have dipped with the recent market selloff,” according to VanEck research. “While this has been happening, yields on these securities have continued to increase as the Federal Reserve (Fed) continues to raise rates in their effort to ward off inflation. The result: real yields on many income generating securities have turned positive in 2022.”
INC’s 14 holdings include a variety of well-known ETFs from the VanEck lineup, including the VanEck Fallen Angel High Yield Bond ETF (NASDAQ: ANGL), the VanEck Mortgage REIT Income ETF (MORT), and the VanEck Morningstar Durable Dividend ETF (DURA), among others.
Currently, the bulk of INC’s holdings are fixed income ETFs or funds dedicated to hybrid securities with bond-like traits. For the bulk of this year, that’s not been the place to be, but there are signs that inflation may be cooling, as highlighted by the October Consumer Price Index (CPI) reading.
That could be a sign the Federal Reserve could lay off rate hikes in 2023, potentially providing much-needed relief to the bond market. In other words, there could be value in INC’s bond tilts today.
“Waning valuations in recent months may cause yields to appear more attractive, but just because the yield is high doesn’t make it a good buy. An actively managed solution from VanEck’s Quantitative Investment Solutions group can help investors avoid yield traps and potentially enhance the quality of high yielding investments,” added VanEck.
Plus, INC investors get the benefit of active management. Potentially, that’s a positive because active management could better identify valuation and credit opportunities.
“Active management can also help investors navigate turbulent capital markets. By tactically shifting allocations, the portfolio management team may be able to enhance downside protection as well as upside participation,” concluded VanEck.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.