Investors Seek Income Outside Traditional Bonds As Rates Rise

According to CNBC, investors facing higher rates and inflation are looking beyond traditional bonds for income, with advisors shifting toward lower-duration alternatives such as ultra-short bonds and other yield-generating assets. The article cites insurance-linked securities, master limited partnerships, covered call ETFs, dividend-paying stocks, REITs, preferred stocks, asset-backed securities and merger arbitrage as possible options, while noting that each comes with tradeoffs such as higher volatility, interest-rate sensitivity, liquidity risk or deal risk. Among the examples cited, Paul Karger of TwinFocus Capital Partners favors catastrophe bonds, with his firm allocating 3% to 5% to cat bonds in almost all portfolios through mutual funds. The Victory Pioneer CAT Bond Fund (CBYYX) recently surpassed $2 billion in assets under management, while the Brookmont Catastrophic Bond ETF (ILS) had a year-to-date total market return of 5.57% as of August 31 and a net expense ratio of 1.58% as of June 30. The article also points to dividend ETFs including Capital Group Dividend Value ETF (CGDV), Fidelity High Dividend ETF (FDVV) and JPMorgan Dividend Leaders ETF (JDIV), as well as REIT ETFs such as Dimensional US Real Estate ETF (DFAR), Schwab US REIT ETF (SCHH) and SPDR Dow Jones Global Real Estate ETF (RWO).