My BKT purchase was today, details to come in my next comment. As to inflation, it is my understanding that most sectors will be hurt by inflation but financials might benefit. As interest rates rise, you will see a switch from equities to bonds. This should help short duration bonds better than longer term duration bonds, as the new bonds should benefit from the higher interest rates they pay out. At least that's my interpretation of it. I could be wrong, but that's the play.
What I am doing is keeping the positions small for now and I will wait to see how they perform. If I see where higher interest rates help them, I will add more. If I see that higher rates hinder them, I've kept my losses to a minimum.
My uncertainty has to do with the type of investors we have seen enter the market over the last 10 years. Many of them have never been through a recession or a period of high interest rates before. I don't know how they will react under those circumstances, but if they react like I did during my first and second recession, they will panic and sell and everything will take a hit, so fixed income, or a managed distribution becomes more meaningful to me.
My third recession, which was the worst one since the Great Depression, was a breeze for me since I was a veteran from two previous recessions.
Anyway, you'll see how I spread out my financial CEF's after today's posting. |
