The safety trade has evolved in 2021. While gold and silver rallied in 2020, they are now negative year to date. Instead, crypto and real estate have replaced them as winners.
But for 2022, Tocqueville Asset Management’s John Petrides sees the fixed income market as the safe haven.
“It’s not often we think of the high-yield bond market as the safety place,” the portfolio manager told CNBC’s “Trading Nation.” “But credit is not an issue right now and the U.S. consumer and corporate America are quite healthy.”
He said favoring high yield makes sense with these conditions, however investors should be selective.
Rising interest rates and inflation could make longer-duration bonds risky, instead look at short duration, Petrides recommended.
“With the SHYG, you’re getting a near-5% yield,” he said, referring to iShares’ 0-5 Year High Yield Corporate Bond ETF. “We think that’s compelling in today’s environment.”
Inside Edge Capital Management founder Todd Gordon is more cautious on the fixed income trade. He thinks it is too premature to say inflation is here to stay.
“As real yields continue to be negative, you’re not getting much for the risk premium,” he said in the same interview.
Instead, Gordon suggested an options strategy to make up for lack of yield in the fixed income space.
“We’re going to hold the SPY [the SPDR S&P 500 ETF] but add puts to hedge the downside risk and finance that with an upside call,” he explained.
Gordon said it will allow investors to participate in the market upside with some guardrails for safety.
The market has seen a bumpy ride as it prepares to close out the year thanks to rising omicron cases and inflation fears. Stocks have made a comeback in the past few days after new studies showed the Covid variant has lower hospitalization risks.
Disclaimer: John Petrides and clients of Tocqueville Asset Management own shares of SHYG.