Finding yields from some of the more traditional fixed income asset classes can prove to be challenging, especially at a time when interest rates are widely expected to rise.
During Schwab’s Every Third Friday media call, Bruno del Ama of Global X and Michael Iachini of Charles Schwab discussed some ETF strategies that investors might want to consider if they’re looking to generate incomes outside of bonds or bond funds.
“For some time now, it’s been pretty difficult for investors to generate income from traditional fixed income asset classes,” del Ama, CEO of Global X, said. “Really complicating matters now is the threat of increasing interest rates and of course any meaningful increase in interest rates will cause the value … of low-yield and fixed income securities to go down.”
Del Ama had a few ideas on how some different ETF structures and asset classes could help investors in a rising-rate environment.
“We do think there are some real assets that can help investors position themselves for the current environment,” he said.
Del Ama eyes both real estate and master limited partnerships favorably.
“Typically within the real asset space, the one asset class that investors use pretty broadly in portfolios … is real estate investment trusts and other types of real estate,” del Ama said. “One asset class that investors have been focusing on more recently and really an asset class that has only emerged in the last decade or so is master limited partnerships, or MLPs.”
For investors considering alternative income strategies, and MLPs specifically, Iachini, managing director of mutual fund and ETF research at Charles Schwab Investment Advisory, warned to keep the risks associated with these strategies in mind.
“There are certain risks that are specific to these a little-more-exotic products compared to traditional stocks and bonds,” he said. Adding, “that [doesn’t] mean investors have to avoid them, just need to know what they’re getting into.”