Using Momentum in a Fixed Income ETF to Navigate an Uncertain Market

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By Kelly Ye via

It’s been a tough run for fixed income products lately. With interest rates on the rise and a stock market that, despite its new wave of intense volatility, has continued to fly high, the yield on fixed income products has fallen from a stable 5-6% down to below 3% today [1]. It’s a daunting challenge when working with clients who rely on income from fixed income investments to fill their retirement coffers.

Of course, the shift in the market is no surprise. The combination of a prolonged low interest rate policy, record debt issuance, and credit spread tightening since the financial crisis has caused a precipitous drop in yield. It’s common sense that as expansion fades, interest-rate risk and credit risk rise—both of which play heavily on fixed income returns. When you combine the Fed hikes and the increase in non-financial corporate leverage, it’s no wonder at all that fixed income investing is facing some headwinds.

Combating the rising risk in today’s uncertain market while maintaining the ability to generate income calls for anything but “investing as usual.” With the market behaving so unpredictably, it’s harder than ever to create portfolios that are able to lose less in the short term to make more over the long term. And while fixed income has typically been every advisor’s go-to tool for managing volatility, in today’s environment, passive fixed income investments simply aren’t doing the trick.

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