Saira Malik, Nuveen’s chief investment officer, highlights high-yield municipal bonds, bank loans, and preferred securities as her top income investment ideas. Amidst rising yields, these asset classes offer attractive income potential, tax advantages, and diversification benefits.
High-yield munis provide compelling tax-equivalent yields near 10%, while bank loans offer a hedge against inflation with floating rates. Preferred securities combine equity and fixed-income features, often with tax-advantaged income streams.
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As bond yields continue their upward trajectory, select segments of the fixed income market are presenting attractive opportunities, according to Saira Malik, chief investment officer at Nuveen. Following a robust May jobs report that saw the 10-year Treasury yield climb as high as 4.548%, Malik identified high-yield municipal bonds as a burgeoning area of interest.
“In addition to their attractive yields, muni bonds also have an added tax benefit, which makes them attractive to investors in higher tax brackets,” Malik told CNBC. The federal tax exemption on interest income, along with state tax exemption for in-state residents, enhances their appeal. Despite lagging the market last year due to high supply, Malik noted that high-yield munis are now catching up, benefiting from strong fundamentals such as robust state savings. The tax-equivalent yields are particularly compelling, nearing 10%, offering a significant advantage over taxable bonds.
Furthermore, Malik highlighted the diversification benefits of municipal bonds due to their low correlation with stocks. She also sees them as a way to indirectly invest in the booming artificial intelligence sector and infrastructure development, including data centers and renewable energy projects, while providing an income component.
Nuveen High Yield Municipal Bond Fund (NHMRX)
The Nuveen High Yield Municipal Bond Fund (NHMRX) currently boasts a 30-day SEC yield of 5.48%.
Malik's second income play is bank loans. These debt instruments from below-investment-grade companies typically feature floating interest rates tied to SOFR, making them a hedge against inflation uncertainty. With the Federal Reserve potentially slowing its pace of rate cuts, floating-rate loans are positioned favorably, offering attractive yields around 8% for loans up to three years.
“The assets are also a good portfolio diversifier because of their low correlation to other asset classes, including even investment-grade bonds,” Malik stated.
Nuveen Floating Rate Income Fund (NFRAX)
While direct access for retail investors can be challenging, mutual and exchange-traded funds provide access. The Nuveen Floating Rate Income Fund (NFRAX) holds 82.8% in senior loans and offers a 30-day SEC yield of 5.94%.
Lastly, Malik favors preferred securities, which blend characteristics of both equities and fixed income. These securities trade on exchanges like stocks but offer fixed income-like par values and income streams. They currently provide yields exceeding 6%, with income often treated as qualified dividends, offering a potential tax advantage over ordinary bond interest income.
“The market is heavily dominated by financial companies, which Malik prefers thanks to lower regulations, strong fundamentals and higher liquidity,” the article noted.
These three strategies—high-yield municipal bonds, bank loans, and preferred securities—represent Malik's top recommendations for investors seeking income in the current market environment.
