The past few weeks have been a challenging time for investors. The economic outlook has been thrust into uncertainty. Major benchmarks like the S&P 500® Index have been edging closer to correction territory. Volatility has risen. And there’s no clear endpoint in sight for the Middle East energy market disruptions that lie at the center of these challenges.
Finding investing opportunities amid market volatility
Yet beneath the surface the picture looks more nuanced, says Adam Kramer, lead manager of the Fidelity® Multi-Asset Income Fund (
“Many of the asset classes that are working this year are things that were out of favor last year,” notes Scott Mensi, institutional portfolio manager on Fidelity’s high-income team. “That’s why this feels more like a rotation than a true risk-off event.”
For investors like Kramer and his team—who spend their time in the weeds, digging into mispriced securities—the recent market turmoil has even helped uncover fresh new hunting ground and potential opportunity.
A fund manager's perspective on income investing
Kramer’s fund has an unusual degree of freedom to go anywhere in its pursuit of risk-reward imbalances. As its name suggests, the fund focuses on income-paying securities. But he and his team see their mandate as more than just throwing off an income stream: They aim to produce stock-like total returns, with a premium yield, but with less volatility than stocks.
Their tactical approach allows the team to move quickly when market dislocation unearths new opportunity. And while the fund adheres to strict risk guardrails (like limits on how much interest-rate risk or stock risk it may take on), it has wide latitude to invest across companies’ full capital structures—from common stock to subordinated debt and everything in between.
In fact, it’s those “in between” parts of the capital structure—asset classes like preferred stock and convertible bonds, which tend to receive less analyst coverage and have smaller investor followings—where the team has often found some of the most compelling opportunities.
“My role is not to make predictions about what’s going to happen in the world,” says Kramer. “It’s to know where different investments should trade, relative to one another, and to wait for opportunities to come my way.”
How credit markets have responded to recent volatility
One of the most interesting signals in recent weeks has been how orderly credit markets have remained.
In the bond market, a key indicator of economic stress is credit spreads, meaning the additional yield that investors demand in exchange for taking on credit and default risk. When bond investors become worried about rising recession risk, it’s common to see high-yield credit spreads—i.e., the extra yield that high-yield corporate bonds provide over Treasurys—rise to 5 percentage points or more.
Although credit spreads widened modestly in recent weeks, they’re still well below long-term averages. “Credit spreads are not priced for near-term or medium-term recession risk,” says Mensi. In fact, the recent widening has been concentrated among high-yield bonds in the software and technology segments—an indication that bond investors may be more worried about the narrow risk posed by artificial intelligence (AI), rather than the broad risk of an economic slowdown.
How Treasurys have responded to recent volatility
Treasurys have also behaved somewhat surprisingly, with yields rising (and prices falling) since the start of the conflict—the opposite of what typically happens in “risk off” periods. This reaction might indicate that Treasury investors remain more concerned about potential impacts to inflation and Fed policy than they are about risks to economic growth. Kramer notes that in a truly stressed economic environment Treasurys might be more likely to rally.
The bottom line: So far, the bond market has not been flashing a strong “recession risk” signal.
5 income investing ideas
Using their bottom-up process to navigate the complex market backdrop, Kramer and his team have recently found potential opportunities clustered in a few areas.
1. Convertible bonds: A unique risk-reward profile
Kramer calls convertible bonds the fund’s “secret sauce,” due to the bond-like downside protection but stock-like growth potential they can offer.
Convertible bonds are securities that pay interest like other bonds, but may be converted to shares of the issuing company’s stock at a predetermined ratio. If the issuing company’s stock performs poorly, then convertible bonds often trade like traditional bonds—with the bond’s par value helping to establish a floor under the convertible’s price, and potentially limiting the downside. But if the issuing company’s stock performs strongly, then convertible bonds may trade more like stock, with the potential for uncapped upside.
Dynamics in the convertible bond market have been so favorable lately—with stock-market-beating returns in 2025,1 and new issuers entering the market—that the team has been calling this the “golden age” for convertible bonds. Roughly one third of the convertible market is set to mature over the next few years, creating the potential for pent-up demand that could provide a tailwind for prices. Recent themes the team has been able to play in the convertibles market have included the AI-related infrastructure buildout and company-specific turnaround stories.
2. Preferred stock backed by bitcoin
Kramer notes that preferred shares have played a bigger part in the fund’s portfolio during past periods when preferreds had “a lot of bad news priced in.” Preferred shares generally pay a fixed dividend, and are more senior than common stock but less senior than bonds in a company’s capital structure.
Recently, Kramer has found the preferred market less attractive in aggregate—with average yields too low to compensate for the level of interest-rate risk. But one area has stood out: a set of perpetual preferred stock issued by a bitcoin holding company.
Kramer says he’s been able to find these types of preferred shares, also known as “Digital Credit,” at attractive yield levels. Some of the company’s preferred shares pay floating-rate interest, which essentially eliminates interest-rate risk. And the company’s significant bitcoin holdings have created a collateral buffer that has remained substantial even after large swings in bitcoin prices. Finally, distributions paid on the preferreds may be treated as a return of capital rather than as ordinary or qualified dividends, which can offer more favorable tax treatment.
Because some investors remain skeptical of bitcoin-linked assets, these preferred shares have traded at significant discounts compared with comparable securities. For Kramer, they have presented the kind of idiosyncratic mispricing that his tactical strategy is built for: “It’s an interesting way to collect a premium yield, and to get paid to wait and hide from the bad news elsewhere in the market.”
3. Attractively valued dividend stocks
The fund’s benchmark has a 50% weighting in common stocks, though Kramer and team have often been underweight. What tends to catch the team’s interest is dividend stocks that have an excessive level of bad news priced in.
Even before the recent Middle East conflict, the team had been favoring certain oil tanker stocks. Kramer notes that this wasn’t based on a macro call but rather on a fundamental, bottom-up observation. Publicly traded tanker companies have transformed their balance sheets in recent years, paying down debt and adopting shareholder-friendly dividend structures. With nearly 14% of the global fleet tied up in sanctioned countries, supply is tighter than normal. And certain of the stocks have offered high dividends, plus a “geopolitical hedge.” DHT Holdings (
Another theme in the common-stock portion of the portfolio has been large-cap dividend-paying pharmaceutical companies. Kramer says that the market has been focusing on the problem of patent cliffs at these companies but not paying enough attention to new product pipelines—resulting in too much bad news priced into certain stocks.
4. High-yield over investment-grade corporate bonds
While the team has reduced the fund’s exposure to high yield and credit risk, Kramer says they have favored the risk-reward profile of high yield bonds over investment-grade corporate bonds.
His reasoning is simple math: Within the high-yield market, he can find higher yields and less sensitivity to changes in interest rates. Those high yields can help provide a cushion in the event the economy were to enter a downturn, causing credit spreads to widen. He believes investment-grade bonds could actually be more exposed than high-yield bonds in such a scenario, due to their lower yields and higher interest-rate sensitivity.
5. Tactical emerging markets exposure
Outside the US, the team has taken a selective position in a short-term Brazilian government bond yielding around 10% in local currency. With Brazil’s 2026 election likely to influence currency, Kramer says the bond offers a lower-risk way to capture potential currency upside while earning a relatively high coupon and taking on minimal interest-rate risk.
The bottom line on income investing in turbulent markets
The past few weeks have offered a reminder that markets often act first and ask questions later. But for nimble investors with deep research capabilities, that isn't necessarily a problem.
“It’s always a good time to be a tactical investor, because there’s always something mispriced, regardless of where the economy is in the business cycle,” says Kramer. “There is no shortage of opportunity.”