Markets continue to bleed as investors digest the news of continued high inflation with both consumer and core for April coming in higher than expectations. Newer reports state that wholesale inflation rose 0.5% in April, an 11% increase year-over-year and an indicator that inflationary pressures continue, according to CNBC.
The news follows on the heels of the Fed meeting last week that will see the most aggressive tightening cycle that many advisors and investors have ever experienced, with at least two more 0.50% increases on the near horizon and balance sheet reductions kicking in next month.
The last quarter ended with the S&P 500 in the red for the first time since 2020 and the fourth time the major equity index has ended a quarter in the negatives in the last 25 reporting cycles since September 2015. The declines have been driven by inflation fears, rising interest rate fears, and the exacerbating pressures that Russia’s invasion of and prolonged war in Ukraine has put on the already strained global economy.
“It was only due to a solid late March rally that the quarter improved from awful to garden variety bad,” writes KFA Funds in a recent paper. “Yet March’s gains had the feeling of a joyless bear market rally.”
In an environment where fixed income is challenged and cash becomes increasingly challenged by inflation, equities often can become the less scary of the options for advisors and investors, a somewhat familiar landing strip in unfamiliar times. One place that advisors are turning to seek income is within dividends and dividend-yielding companies.
The KFA Value Line Dynamic Core Equity Index ETF (KVLE) follows a strategy of investing in higher-yield companies while diversifying in a way that a “theme” portfolio does not. The fund is a core equity portfolio of securities that are tilted to favor dividend yield, and it seeks to increase yield while avoiding investing solely in high-yield sectors and stocks.
“We believe that KVLE is well-positioned for a rocky 2022 in the markets. Steady companies with strong balance sheets and pay healthy dividends should do well compared to the S&P 500 OR overall market in most times of difficulty. This is even more so in an environment characterized by reluctant equity investors, who increase US equity allocations for lack of alternatives and naturally favor the less risky stocks,” KFA Funds writes.
The fund uses a smart beta strategy in seeking more cost-efficient alpha as well as a risk-management strategy that seeks to limit the effects of major market declines while also being positioned to capture positive returns.
KVLE carries an expense ratio of 0.55%.
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