The ultimate 2022 safety play could be in this unusual place, traders say
As traditional safe havens like gold falter in 2021, investors are looking ahead to where to find security and yield in 2022. Two market strategists offered contrasting views on CNBC's "Trading Nation," with one advocating for high-yield bonds and another preferring a hedged equity strategy.
John Petrides, portfolio manager at Tocqueville Asset Management, is making a case for high-yield corporate bonds as an unexpected safety play. "Credit is not an issue right now and the U.S. consumer and corporate America are quite healthy," he said. With inflation and rising rates posing a risk to longer-duration bonds, Petrides recommends focusing on short-duration high yield, specifically citing the iShares 0-5 Year High Yield Corporate Bond ETF (SHYG), which offers a yield near 5%. "We think that’s compelling in today’s environment," he noted.
In contrast, Todd Gordon, founder of Inside Edge Capital Management, is skeptical of the fixed income trade, arguing it's too early to conclude that persistent inflation is here to stay. "As real yields continue to be negative, you’re not getting much for the risk premium," he said.
Instead, Gordon suggests an options-based strategy on the S&P 500 to generate income and manage risk. His approach involves holding the SPDR S&P 500 ETF (SPY) while buying protective put options and financing them by selling upside call options. "It will allow investors to participate in the market upside with some guardrails for safety," he explained.
The debate highlights the shifting landscape for risk-averse capital as the market navigates ongoing concerns about inflation and Covid-19 variants, with strategists diverging on whether to seek yield in credit or engineer safety within the equity market itself.
