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The Case for Global Yield Increases as Unemployment Rises

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Benchmark Treasury yields like the 10-year note took a step back last week after the number of Americans filing for unemployment predictably went higher as the coronavirus pandemic shows its tangible effects on the economy. It’s putting fixed-income investors on a search for yield where they may have to look for opportunities abroad to find it.

Based on numbers from the Labor Department, 6.6 million Americans filed first-time unemployment claims last week, bringing the total claims the last three weeks to more than 16 million. Compared to the last monthly employment report, a total of 10% of the workforce was lost in just three weeks’ time.

“We came into this release assuming it was less about the absolute level of initial claims and more about the trajectory; so on the margin, the fact this morning’s print wasn’t a record high is encouraging,” said Ian Lyngen, BMO’s head of U.S. rates.

This prompted the Federal Reserve to take action by vowing to inject another $2.3 trillion to help shore up businesses affected by the coronavirus. This comes on top of the Fed already planning to purchase more bonds, including corporate and high yield debt.

“Our country’s highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus,” Fed Chairman Jerome Powell said in a statement. “The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.”

US Unemployment Rate Chart

US Unemployment Rate data by YCharts

An Active, Quality-Focused Global Yield Opportunity

If the benchmark yields in Treasurys continue to plummet, investors can look to global yield opportunities like the Principal Active Global Dividend Income ETF (GDVD). GDVD’s prime focus is seeking current income and long-term growth of income and capital.

The fund is an actively managed ETF that seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in dividend-paying equity securities at the time of purchase. It invests in equity securities of small, medium and large market capitalization companies and in growth and value stocks.

GDVD offers investors:

  • Emphasis on dividend growth: Dividend growers and payers have historically had higher returns with less risk than non-dividend paying stocks.
  • High-quality companies: Adhering to a quality-first mentality removes subpar operators, helping to avoid value traps.
  • Thinking outside the box: Based in the Pacific Northwest, we avoid Wall Street’s herd mentality, which reinforces our contrarian edge.

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