Key Takeaways
- • Advisors and strategists say bonds should remain part of diversified portfolios, but some investors are cutting fixed-income exposure amid a rapid rise in rates driven by inflation and geopolitical concerns, according to CNBC.
- • Income alternatives highlighted include insurance-linked securities, MLPs, covered call ETFs, dividend stocks, REITs, preferred stocks, asset-backed securities and merger arbitrage.
- • Catastrophe bonds offer mid-to-high-single-digit returns, though returns can turn negative in years with heavy catastrophe losses; TwinFocus Capital allocates 3% to 5% to cat bonds in most portfolios.
- • Alternative private-market lending against real assets such as rail cars and gas wells is generating tax-deferred yields of 6%-10%, per Robertson Stephens CIO Stuart Katz.
- • Advisors warn that higher yield generally requires taking on additional risk, including interest-rate sensitivity and concentration risk.
Summary
Investors are reassessing their fixed-income exposure as bond markets have suffered a punishing period of negative performance. Uncertainty over inflation, geopolitical concerns and a relentless rise in rates have led some investors to limit bond allocations, according to CNBC reporting. Most advisors interviewed still view bonds as part of a diversified portfolio, but many are shifting toward lower-duration alternatives such as ultra-short bonds while adding non-fixed-income sources of current income.
Among the options cited, Paul Karger of TwinFocus Capital Partners favors catastrophe bonds, which transfer natural disaster risk from insurers and reinsurers to capital market investors. The asset class has offered mid-to-high-single-digit returns, though returns can be negative in years with elevated catastrophe losses. The Victory Pioneer CAT Bond Fund (CBYYX) recently surpassed $2 billion in assets under management, and the Brookmont Catastrophic Bond ETF (ILS) returned 5.57% year to date as of August 31, with a 1.58% net expense ratio as of June 30.
Equity-based income includes dividend stocks, REITs, MLPs and preferred stocks. Morningstar named Capital Group Dividend Value ETF (CGDV), Fidelity High Dividend ETF (FDVV) and JPMorgan Dividend Leaders ETF (JDIV) among the best for passive income in 2026. Janney Montgomery Scott CIO Michael W. Crook is cautious on MLPs given their rate sensitivity with the 10-year Treasury in the upper 4% range, while the Global X MLP ETF (MLPA) showed a 30-day SEC yield of 6.82% as of Sept. 4. The iShares Preferred & Income Securities ETF (PFF) had a 30-day SEC yield of 6.52% as of July 31.
Alternative strategies include merger arbitrage, which Morningstar describes as offering a bond-like profile with limited upside and larger downside if deals break. Jeff Mortimer of Elyxium Wealth is looking at merger arb ETFs such as NYLIM Merger Arbitrage ETF (MNA), AltShares Merger Arbitrage ETF (ARB) and ProShares Merger ETF (MRGR). Stuart Katz of Robertson Stephens favors private lending against real assets, with tax-deferred yields of 6%-10% and typical durations of one to three years, while noting liquidity and collateral risks. Advisors caution that diversification across sectors is essential and that any alternative income source carries a tradeoff between yield and added risk.
Among the options cited, Paul Karger of TwinFocus Capital Partners favors catastrophe bonds, which transfer natural disaster risk from insurers and reinsurers to capital market investors. The asset class has offered mid-to-high-single-digit returns, though returns can be negative in years with elevated catastrophe losses. The Victory Pioneer CAT Bond Fund (CBYYX) recently surpassed $2 billion in assets under management, and the Brookmont Catastrophic Bond ETF (ILS) returned 5.57% year to date as of August 31, with a 1.58% net expense ratio as of June 30.
Equity-based income includes dividend stocks, REITs, MLPs and preferred stocks. Morningstar named Capital Group Dividend Value ETF (CGDV), Fidelity High Dividend ETF (FDVV) and JPMorgan Dividend Leaders ETF (JDIV) among the best for passive income in 2026. Janney Montgomery Scott CIO Michael W. Crook is cautious on MLPs given their rate sensitivity with the 10-year Treasury in the upper 4% range, while the Global X MLP ETF (MLPA) showed a 30-day SEC yield of 6.82% as of Sept. 4. The iShares Preferred & Income Securities ETF (PFF) had a 30-day SEC yield of 6.52% as of July 31.
Alternative strategies include merger arbitrage, which Morningstar describes as offering a bond-like profile with limited upside and larger downside if deals break. Jeff Mortimer of Elyxium Wealth is looking at merger arb ETFs such as NYLIM Merger Arbitrage ETF (MNA), AltShares Merger Arbitrage ETF (ARB) and ProShares Merger ETF (MRGR). Stuart Katz of Robertson Stephens favors private lending against real assets, with tax-deferred yields of 6%-10% and typical durations of one to three years, while noting liquidity and collateral risks. Advisors caution that diversification across sectors is essential and that any alternative income source carries a tradeoff between yield and added risk.
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