In an article for Advisor Perspectives, Scott Welch and Kevin Flanagan of WisdomTree shared some strategies that can be used to generate income in the current market whether using model portfolios or ETFs.

Of course, this is a big change from the last decade when the Fed’s dovish policies meant that dividend yields on equities exceeded bond yields for the most part. This is no longer the case as the Fed is waging an aggressive hiking campaign to curb inflation even at the cost of a bump in the unemployment rate or a recession.

Thus, the Fed has already hiked rates to 5% and is forecast to hike two or three more times before the current cycle is terminated. More important, the Fed is ‘data-dependent’ and willing to change course depending on inflation and/or financial stability concerns.

This uncertainty and elevated rates mean there is a plethora of opportunities for investors to find income. For those who are comfortable with duration risk, high-yield bonds and equities are an option in addition to ETFs. For those not comfortable with duration risk, shorter-term notes and floating rate options are a good fit.

Finsum: After more than a decade of a paucity of options for income investors, the current market is offering a variety of opportunities.

Check your bank statement. Chances are – and this is just a hunch, mind you – it probably doesn’t total anywhere near oh, say, $10.82 billion. Double check it, in fact.

Point is: that’s the total which the global alternative market financing market came in at, according to grandviewresearch.com. Not only that, from 2023 to 2030, it’s expected to catapult at a compound annual growth rate of 20.2%. Fueling the industry’s been the need to access capital for small businesses and individuals. Given the stringent requirements among traditional banking institutions, it was that much tougher for many to secure loans. Enter alternative finance products. Especially among those who might fall short of meeting the rigid requirements of traditional banks, there’s a greater accessibility to capital through alternative finance products.

While yields have returned, in light of inflation and policy uncertainty, bonds just might have to apply a little elbow grease to deliver the degree of diversification they at one time dispensed, according to blackrock.com.

Seems that fixed income’s calling and it might pay to presume it’s not someone hawking insurance.

In 2023, it “has a huge potential” to dispense strong returns, according to Joanna Gallegos, co founder of BondBloxx Investment Management, reported yahoo.com, which carried an article earlier in the year which originally was published on ETFTrends.com. That said, it remains a good idea to be cautious.

Worth investing time in, especially: high yield corporate debt. That’s because they offer high yields and it’s projected by Bond Boxx that corporate defaults, compared to their long term average, will remain lower.

Tormented by hyper interest rate spikes that culminated in spiraling bonds yields, 2022 was one of the worse for fixed income, added money.usnews.com.

It sparked a deep dive of price of fixed income assets, and longer duration issues in particular.  

This year? Oh how the page turns. Paul Malloy, head of municipals at Vanguard, said "the 2023 outlook is drastically different than the position we found ourselves in last year,” Indeed, fixed-income investors started 2022 with a near-zero federal funds rate, but are now entering 2023 with a rate of 4%-plus. According to Malloy, the Federal Reserve "front-loaded" much of its policy tightening this cycle and is likely nearing a wrap.

“The fixed income asset class has a huge potential to deliver better performance in 2023,” Gallegos said on CNBC’s “Worldwide Exchange.” “We’re at new rate levels we haven’t seen in over a decade plus, and so, you’re really resetting valuations in a way that are very attractive.”

About 14% of advisors are aware of and recommend direct indexing solutions to their clients which is the primary reason that its forecast to grow faster than ETFs over the next decade. In a recent article by Allen Roth of WealthLogic, he discusses the pros and cons of direct indexing and compares it to ETFs.

Direct indexing has many of the same characteristics as ETFs such as allowing exposure to broad categories and having low costs. However, it allows for greater customization that can allow for portfolios that are more tailored to a client’s needs. 

Another distinct  advantage of direct indexing are that it allows for tax-loss harvesting which can offset capital gains. This strategy can allow for an additional 0.2 to 1% of returns and is more beneficial in down years. 

In terms of disadvantages, many of the most popular ETFs have less costs than direct indexing. For example, the most popular S&P 500 ETFs have annual expenses of 0.03%, while most direct indexing fees are in the 0.4% range. 

While this won’t make a different in the near-term, it will matter in the long-term especially as tax-loss harvesting benefits erode over time. Additionally, the slight tax benefits may be outweighed by the tax complications as each trade needs to be accounted for.

Finsum: Direct indexing is expected to grow at a faster rate than ETFs over the next decade. Yet for many investors, ETF remain the better choice.

Treasuries returned 3% in Q1 which is its best quarterly performance since 2020. In an article for Bloomberg, Liz McCormick and Michael Mackenzie covered some reasons for why this outperformance should continue. 

Three of the major factors are expectations of increased demand from Japan, a weeklong pause in auctions, and strong inflows from institutional and retail investors amid higher rates and wobbles for the banking system. 

The next major, market-moving event will be the March jobs report on Friday. Some analysts see the potential for weakness in Treasuries if there is a strong report regarding wages and jobs. This could undermine of the catalyst behind the Treasury rally - expectations that the Fed’s hiking cycle is nearly over. On the other hand, Treasuries could rally with a weak report.

Demand for Treasuries spiked amid the bank failures last month. As a result, yields for short-term notes tumbled to their lowest levels of the year with the 2-year Treasury yield declining by a 100 basis points. It also led to market expectations of the Fed terminal rate declining, while odds of the next Fed move being a cut rather than a hike, also jumped higher.

Finsum: Treasuries outperformed in Q1 with a major catalyst being bank failures which led to a surge in demand for safe-haven assets.