The 10-year U.S. Treasury yield has hit 3.48%, its highest in 11 years, as investors fear a higher than 0.50% interest rate increase coming out of the Federal Reserve meeting tomorrow. Todd Rosenbluth, head of research at VettaFi, discussed the current challenging environment for bonds and equities on the “Claman Countdown” on Fox Business and the growing interest in dividends.
“Investors have been preparing for a rising interest rate environment, and they’re trying to get ahead of the Federal Reserve,” Rosenbluth explained. “At VettaFi, what we’re seeing is investors are looking for a range of alternatives to be able to get high income.”
These alternatives include high dividend-yielding ETFs, such as the Vanguard High Dividend Yield Index ETF (VYM ), which offers cheap, broad exposure that is heavily weighted to the financial sector and has less exposure to technology securities.
Another popular alternative is the ALPS Sector Dividend Dogs ETF (SDOG ), a fund that is equal-weighted across sectors and pulls the highest dividend-yielding securities from each sector. SDOG allocates to companies like IBM, AT&T, and Exxon Mobile.
“This is a broadly diversified, high dividend-yielding ETF that we think investors are paying more attention to,” Rosenbluth said.
Volatility and the Second Half of 2022
Pivoting to discuss volatility in markets, Rosenbluth explained that the summer months typically experience higher levels of volatility due to less liquidity and trading happening. The highly anticipated Federal Reserve meeting tomorrow and the rate hike that comes out of it will also give markets a better idea of what to expect for the second half of 2022, as the Fed is likely to update its guidance for the rest of the year at this meeting.
“Once investors have more comfort, then they’re more likely to put money to work in a wide range of investments,” Rosenbluth said.
This could include money flowing back into Treasuries, high-yielding instruments within bonds, and growth-oriented stocks found in funds like the Invesco QQQ Trust (QQQ ) and the ARK Innovation ETF (ARKK ).
Rosenbluth is not anticipating a recession but does believe that investors need to be diversified within both fixed income and equities inside their portfolios in markets driven heavily by investor sentiment and fear.
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