Cautious investors piling into cash may want to consider other options.
According to SPDR Exchange Traded Funds’ Matthew Bartolini, active management can also provide them with stability and income while creating more opportunities for upside.
“Active fixed income has been really a consistent engine of support within the active [ETF] construct — not only from flows but also returns,” the firm’s managing director and research head told CNBC’s “ETF Edge” this week.
Bartolini contends that not only do they give investors more flexibility, the strategies also provide consistent performance and improved tax efficiencies.
He also believes the forward-looking returns are looking better than they have in the past.
“But with higher returns comes higher volatility,” added Bartolini, who sees big benefits from active management. “The thing we keep going back to with investors [is] about creating portfolios that can generate income returns while maximizing the amount of risk they are taking to get those because yields are high.”
Bartolini warns cash carries its own set of risks.
“On the cash portion of the market, that income is not going to be as stable as it once was because of reinvestment risk,” he said.
‘Very hard to get people to think about bonds’
Dan Egan, vice president of behavioral finance and investing at robo-advisor Betterment, said it’s “very, very difficult” to pull investors out of cash.
“It’s very hard to get people to think about bonds when you can get that risk-free,” he said. “Don’t forget that FDIC insurance plays a very big role in people’s sense of safety.”
Betterment’s website as of Friday shows its variable high-yield cash account pays 4.75% APY. It’s also giving new customers a promotional rate of 5.50% for three months.
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