Displaying items by tag: dividends

(New York)

One of the challenges that all advisors are dealing with at the moment is how to handle rising rates and their affect on portfolios. There are good options out there for handling the challenge, like rate hedge ETFs, but within the efforts to defend against losses, there have a been a few hard-to-predict moves. One big surprise has been the performance of utilities stocks. Utilities generally lose when rates rise as their yields look relatively less attractive. However, utilities are outperforming the market, with a flat performance this month through Monday, and a 6% gain in the last three months. Explaining the gains, one fund manager says “'In a market like this, in a dramatic sell-off, the rotational effects will be higher than the interest rate effect”.

FINSUM: We sort of understand the safe haven status, but how does a rate-sensitive sector become a safe haven from rate-driven losses? Nonetheless, utilities stocks are doing well.

(New York)

Want to maintain your portfolio’s income, but also afraid of rising rates? Many are, as it is a difficult challenge keep income high but not experience losses. With that in mind, here are a handful of mutual funds which should help do just that. One area to look for diversified income right now is in multi-asset income funds. Some of the best are the American Funds Income Fund of America (AMECX), the Vanguard Wellesley Income (VWINX), the BlackRock Multi-Asset Income (BAICX), the JPMorgan Income Builder (JNBAX), and the Principal Global Diversified Income (PGBAX).

FINSUM: Many of these funds are quite old and have had great performance. Fees are all over the map, but one of the areas where they tend to succeed is in having good performance with lower volatility than the market as a whole.

(New York)

The Wall Street Journal says the conventional logic as to which stocks are safest during periods of rising rates is wrong. The traditional play is to buy into large, safe, dividend-payers. However, over the last thirty years, those are exactly the stocks to avoid during rising rate periods. A better decision, if history is any guide, is to put your money into small caps and cyclical sectors. Small caps have outperformed large caps by a wide margin in rising rate periods, as have growth investments and cyclical sectors.

FINSUM: Straight dividend payers are not the best choice. Dividend growth stocks are likely a much better choice, and small caps seem like a good idea as well as they tend to see the biggest gains in strengthening economies.

(New York)

If rising rates weren’t scaring you a week ago, they surely are now, as the weight of rate rises has finally hit markets in a big way. With that said, here are some ETFs to help offset or benefit from rate hikes. Vanguard’s Short-Term Bond ETF (BSV) is a good bet, with an expense ratio of just 0.07% and a yield of about 3%. Another interesting one is the Invesco Senior Loan ETF (BKLN). The loans underlying this fund have their yields reset every 30 to 90 days, so your payout keeps rising with the market. The fund yields 4.19% and costs 0.65%. Lastly, take a look at the Fidelity’s Dividend ETF for Rising Rates (FDRR), which focuses on dividend growth stocks, a group that has historically performed well during periods of rising rates.

FINSUM: This a nice group of options, all of which are quite different from each other.

(New York)

As almost all investors are aware at this point, global markets, including the US, saw huge moves in yields yesterday. Trading of the 10-year US Treasury bonds saw yields as high as 3.22% today, sharply higher than just a week ago. The Dollar also soared. This led to a big selloff in stocks as well as major losses across emerging markets and US corporate bonds.

FINSUM: In our view, there are two ways to interpret this big move higher in yields. One is that it was just reactionary to new US economic data and that yields will stall again. The other is that the market has finally woken up to the reality that higher rates and yields are a certainty and that expectations need to be reset. We favor the latter view and think this could be a paradigm-shifting move that finally sparks losses in bonds and rate-sensitive stocks.