Yield-Generating ETF Opportunities in a Low-Rate Environment – ETF Trends

Yield-hunting investors can still bolster a fixed income portfolio in a low-rate environment with targeted exchange traded fund strategies.

In the recent webcast, How to Find Yield in a Low-Rate Environment, Jason Bloom, Director, Global Macro ETF Strategy, Invesco, explained that we might be stuck in a lower-for-longer yield environment after the Federal Reserve stepped in with several programs targeting market liquidity. After the Fed’s intervention, U.S. credit markets have rallied with heavy primary issuance and strong retail investor demand.

Bloom argued that while most purchases have yet to take place, the Fed’s actions have sent a strong message of support to the markets. Trading and issuance have progressed to healthier levels across many fixed income market places, with corporate bonds setting several monthly issuance records over the summer. Consequently, valuations have grown significantly, especially in the corporate bond sector, leaving investors to turn to alternative sources of yield.

As a way to help income-minded investors achieve their goals, Invesco has highlighted yield-generating opportunities in municipal bonds, preferred stocks, and high-yield bonds.

Brian McMullen, Fixed Income ETF Strategist, Invesco, believed that despite this ongoing recovery, municipal bonds still offer compelling value and higher credit quality.

While yields are at 60-year lows in the municipal bond market, McMullen argued that taxable bonds still offer attractive income. Specifically, the ICE BofATaxable Municipal Bond Index showed a 2.24% yield as of the end of July 2020, compared to the 1.92% yield for the ICE BofAUS Corporate Index.

Municipal bonds also come with lower credit

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