These high-yielding investments can protect against inflation risk, market analysts say

The hunt for yield has intensified.

Finding high-yield, low-risk inflation hedges in the ETF market
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Investors are turning to alternative securities for income as inflation concerns grow and Treasury yields remain relatively low — and some may be worth considering, market analysts say.

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They include short-duration inflation-protected securities, which mature quickly and can help lower risk in case of an uptick in interest rates, and convertible securities, often bonds or preferred stock that investors can convert to a given company’s common stock at any time, American Century’s Ed Rosenberg told CNBC’s “ETF Edge” this week.

With short-duration investments, “you eliminate the potential credit risk that longer-term inflation-protected securities have,” said Rosenberg, his firm’s head of exchange-traded funds and senior vice president.

“When you own convertible securities, you get a little bit of a higher yield — granted, it’s not that high — and in addition, you also tend to get a little less volatility as rates start to rise or as inflation comes into play,” he said in the Monday interview.

Actively managed ETFs can also come in handy in an inflation environment because managers can be nimble during periods of volatility and generate a higher yield over time, Rosenberg said.

American Century’s new Multisector Income ETF (MUSI) aims to bring shorter duration, higher yield and active management under one roof with its portfolio of investment-grade bonds and other debt vehicles, Rosenberg said. It is down less than a tenth of 1% since its July launch.

Many investors are opting for strategies like American Century’s over broader fixed income indexes because they’re realizing it pays to be selective, ETF Trends CEO Tom Lydon said in the same interview.

“Not all constituents in these fixed-income indexes are created equal,” Lydon said. “What Ed is saying about active is really going to be key and critical. And since they’re offering these types of strategies just recently and they tend to be smaller, you’re getting some of their best ideas.”

As investors and advisors move away from the 60-40 stock-bond portfolio allocation and more towards 70-30 or even 80-20, alternative income strategies are also having a moment, Lydon said.

He highlighted covered call strategies such as JPMorgan’s Equity Premium Income ETF (JEPI), the Nationwide Risk-Managed Income ETF (NUSI) and Global X’s NASDAQ 100 Covered Call ETF (QYLD) for offering notably high yields combined with equity exposure.

JEPI and NUSI both yield nearly 8% while QYLD yields nearly 12%.

“This is something that can replace current equity exposure and also give you that yield you’re looking for as well,” Lydon said.

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