Bonds that trade primarily based on credit risk, along with high dividend-paying equities, may offer a substitute for low-yielding and increasingly vulnerable traditional core bond holdings.
- Seek a higher yield. Bonds that trade primarily based on credit risk, as well as high dividend-paying equities, offer the potential for enhanced income and diversification.
- Seek to avoid the pitfalls of rising rates. High yield bonds, bank loans and high-dividend paying equities have the potential to outperform in rising rates.
- Seek diversification. Although credit-sensitive bond sectors and dividend-paying equities may exhibit higher volatility or have higher risks, they can meaningfully enhance diversification from more interest rate-sensitive core bonds.