Estimate Time6 min

Opportunities for income investors

Key takeaways

  • High yields across a variety of asset classes could offer attractive opportunities for income-oriented investors.
  • Focus on factors such as asset prices and credit quality and stay diversified.
  • Income investments that look appealing in 2024 include medium maturity US Treasury bonds, preferred stocks, short-maturity high-yield bonds, floating-rate bank loans, and energy.
  • In exchange for higher income, some assets may experience more volatility than traditional income investments.
  • Professional investment managers have the research resources and investment expertise necessary to help identify opportunities and manage the risks associated with higher-yielding security types.

For much of 2023, investors, consumers, and central bankers alike have been watching for a recession. Instead, the economy has kept growing and the job market has also remained healthy. So the big question remains: Will a recession arrive with the new year or can the Federal Reserve achieve a “soft landing” by keeping interest rates just high enough to slow inflation without crashing the economy?

But fretting over when the next recession may arrive is not a recipe for successful investing says Adam Kramer who manages Fidelity® Multi-­Asset Income Fund (FMSDX). He says it's much more important to put together a diverse portfolio of income-producing assets that can help give you both downside protection if things go badly and also upside potential if they don't. Kramer points out that regardless of what phase of the business cycle the economy may be in, there are nearly always opportunities to buy mispriced assets that seek to help deliver income for investors and also have the potential to increase in price over time. Kramer says he looks for high-quality assets whose prices have been temporarily pushed down by investors overreacting to uncertainty about factors unrelated to the ability of the assets to deliver yield. As he puts it, "Think about how much the coupon payment is, how much duration risk there is, but also whether an investment has the potential to give you extra capital appreciation if bad news doesn't occur." Given the widespread uncertainty about where interest rates and the economy may be headed, this may be an especially useful approach for income-seeking investors to take in 2024.

Fidelity Viewpoints

Sign up for Fidelity Viewpoints weekly email for our latest insights.

Finding opportunities in US Treasury bonds

Kramer believes that opportunities in 2024 could exist in Treasury bonds with medium- to long-term maturities. Since the Federal Reserve began raising interest rates in 2022, rising yields have been accompanied by falling prices for Treasury bonds that were already in the market.

Bonds issued by the US Treasury offer low default risk and liquidity and Kramer believes Treasurys may offer a rare and attractive opportunity for those investors who have the ability to take advantage of it.

But while some see bad news, Kramer sees opportunity in these Treasurys. "These longer-maturity Treasurys are offering a very rare opportunity to 'do more with less,'" he says. "There's a lot of bad news about 'higher for longer,' but these bonds' relatively high coupon payments may offset the risk that higher interest rates could pose to bond prices. That means they should offer downside protection and could potentially generate significant single-digit total returns if the economy takes a downturn and rates move lower." For example, as of December 6, 2023, 7-year Treasurys are offering a 4.6% current yield. If the Federal Reserve cuts interest rates by 100 basis points, you would earn your 4.6% coupon plus capital appreciation of 6%. That would mean your potential upside total return would be 10.6% when the Fed makes its first rate cut. If rates were to instead rise by 100 basis points, you would lose that 6% in principal, but the 4.6% coupon would limit the decline in the value of your investment to only 1.4%, assuming you hold onto it for the entire 12 months. Says Kramer: "If you want the yield, liquidity, and low default risk of Treasurys plus the potential for rising prices when rates fall in the future, this may be a good time to get those things at attractive prices."

Opportunities beyond Treasurys

While Treasurys may present a unique opportunity as 2024 begins, Kramer also says a wide variety of income assets may deliver stock-like returns with less potential volatility than stocks in the year ahead. That's especially a consideration if the economy does in fact slow down. Stocks have historically outperformed both bonds and cash but during recessions, both bonds and cash have performed better than stocks.

Opportunities to do more with less are not secrets, but not all investment managers focus their attention on finding them. "Every manager's looking at stocks and investment-grade bonds," says Kramer. "Not as many are doing the work on other securities, but if we do the research, we can find opportunities."

One opportunity may exist in fixed-to-floating preferred stocks. Despite their name, preferred stocks are actually hybrid securities that in some ways resemble bonds but also represent equity shares in the companies that issue them. 

Kramer likes preferred stocks of investment-grade US utility companies, master limited partnerships (MLPs), and big US banks, particularly those whose interest rates are either rising now or are scheduled to do so in 2024. "I think that those may be great ways to earn high, single-digit yields now while you wait for their prices to rise. Right now, you can buy them for less than their face value and their issuers can choose to buy them back from you for face value. If they don't choose to do that, the interest rates that they pay may increase and could earn a higher return that way. If you're looking for income, you'd probably rather collect an 8% or 9% current yield on these fixed-to-floating preferreds than a 3% dividend yield from the stocks of these same companies."

Opportunities in short-maturity, high-yield corporate bonds

Another group of income-producing assets likely to offer attractive returns in 2024 are bonds issued by companies whose credit ratings are just below investment grade.

Kramer says that the short-maturity, high-yield bonds issued by these companies can provide an attractive alternative to owning those companies’ stocks, especially in a recession. In past recessions, bond prices have historically risen while stock prices have fallen. Right now, the interest payments—known as coupons—on many high-yield bonds are also higher than they have been in recent years. Those coupon payments, as well as their prices in the marketplace, contribute to the total return of these bonds.

Kramer says the default risk of companies rated just below investment grade has historically been low and he explains, "I feel like you're getting a bigger bang for your buck in high-yield bonds than in stocks of the same companies. If earnings decline, high-yield bond prices are likely to be less volatile than stock prices. High-yield is also attractive because more than 50% of the market is currently rated just below investment grade and presents relatively little credit risk. That's unusual. So even if the economy gets worse, you could still earn close to 10% on high-yield with typically much less volatility than stocks." In a diversified portfolio, those high yields could potentially offset declines in asset prices that often accompany economic slowdowns.

Keep in mind, though, that the bond universe is a far more vast and variegated place than the stock market and not all bonds perform equally well during recessions. Credit quality also varies widely among high-yield bonds, so careful research is important.

Opportunities in loans

Kramer has also found opportunities in floating-rate loans that banks make to companies and then sell to investors.

Floating-rate loans not only offer potential inflation protection, they are also a hedge against rising interest rates. That's because, unlike most bonds, the interest rates on floating-rate loans adjust upward along with rises in key consumer interest rates. That means loans are less likely than most fixed income investments to lose value when inflation and interest rates rise. While past performance is no guarantee of future results, loans historically have performed better than longer-duration fixed income bonds in rising-rate environments. From August 2022 to August 2023, for example, leveraged loans returned 11.22% on a total return basis, compared to investment-grade bonds' −0.23%.

Credit quality is an important consideration for investors in loans and Kramer is focusing on loans to what he believes are high-quality companies. ”If you’re getting a 9% current yield on a loan to a company such as Uber or Four Seasons Hotels or Bass Pro Shops, it matters less what's going to happen with the short-term market prices of these securities," says Kramer.

Securities issued by master limited partnerships (MLPs) that own and operate oil and natural gas pipelines are another place where one can currently find 8% to 9% yields. "In the past, master limited partnerships were shunned because everybody was down on energy pipelines and production, but we do need oil and gas," says Kramer. "These companies have been reducing their capital spending and acquisitions and their free cashflow yield is expanding as a result. This is a situation where the payout ratios have been dropping into the 50s, which is quite attractive for something that can have around a 9% dividend yield."

Dividend-paying stocks of oil and product tanker companies are yet another income opportunity in the energy industry. "Oil tanker companies pay out a large percentage of their income in the form of dividends, which is why they fit into a multi-asset income strategy," he says. "Having enough oil has become a national security priority and because of geopolitics, tankers have to travel longer routes to move oil around the world. I think the setup for tankers is going to be very constructive over the next 2 or 3 years."

Another dividend income opportunity may come from companies that mine gold. Gold has long been popular with investors who are concerned about the power of inflation to reduce the value of cash and other investments, but owning it also comes with risks. Gold-mining companies may give investors a less risky way to benefit from rising gold demand as they typically distribute a significant portion of their earnings to shareholders in the form of dividends. Like other stocks, dividend-paying value stocks of gold-mining companies have been affected by higher interest rates, but unlike common stocks, Kramer believes that both rates and a potential economic slowdown have already been priced in. Plus, gold miners now offer sustainable dividend payments of 4% to 5% as well as attractive prices.

More dividend-paying opportunities may also exist in consumer staples and large-cap pharmaceutical company stocks. "Many of these companies got very expensive compared to bonds but their valuations have come down as interest rates have risen. Drug stock prices have also been hurt by investors' assumptions about the impact of the GLP-1 weight loss drugs." Kramer says he's starting to look carefully at these dividend payers. "It's now quite possible too much bad news is priced in there. Yields are higher than Treasurys, so they may be another example of “doing more with less.”

Finding—and using—ideas

Professional management and research can help you manage the risks that come from venturing into less-common income investments. Investors interested in multi-asset income strategies should research professionally managed mutual funds or separately managed accounts. You can run screens using the Mutual Fund Evaluator on

Interested in mutual funds?

Choose your criteria and get fund picks from Fidelity or independent experts.

More to explore

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

The views expressed are as of the date indicated and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author, as applicable, and not necessarily those of Fidelity Investments. The third-party contributors are not employed by Fidelity but are compensated for their services.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

The stocks mentioned are not necessarily holdings invested in by Fidelity. References to specific company stocks should not be construed as recommendations or investment advice. The statements and opinions are those of the speaker, do not necessarily represent the views of Fidelity as a whole, and are subject to change at any time, based on market or other conditions.

Lower yields - Treasury securities typically pay less interest than other securities in exchange for lower default or credit risk.

Interest rate risk - Treasuries are susceptible to fluctuations in interest rates, with the degree of volatility increasing with the amount of time until maturity. As rates rise, prices will typically decline.

Call risk - Some Treasury securities carry call provisions that allow the bonds to be retired prior to stated maturity. This typically occurs when rates fall.

Inflation risk - With relatively low yields, income produced by Treasuries may be lower than the rate of inflation. This does not apply to TIPS, which are inflation protected.

Credit or default risk - Investors need to be aware that all bonds have the risk of default. Investors should monitor current events, as well as the ratio of national debt to gross domestic product, Treasury yields, credit ratings, and the weaknesses of the dollar for signs that default risk may be rising.

Past performance is no guarantee of future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market, or economic developments, all of which are magnified in emerging markets. These risks are particularly significant for investments that focus on a single country or region.

High-yield/non-investment-grade bonds involve greater price volatility and risk of default than investment-grade bonds.

Floating-rate loans generally are subject to restrictions on resale. They sometimes trade infrequently in the secondary market, so may be more difficult to value, buy, or sell. A floating-rate loan might not be fully collateralized, which may cause it to decline significantly in value.

Preferred securities are subject to interest rate risk. (As interest rates rise, preferred securities prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Preferred securities also have credit and default risks for both issuers and counterparties, liquidity risk, and, if callable, call risk. Dividend or interest payments on preferred securities may be variable, be suspended or deferred by the issuer at any time, and missed or deferred payments may not be paid at a future date. If payments are suspended or deferred by the issuer, the deferred income may still be taxable. See your tax advisor for more details. Most preferred securities have call features that allow the issuer to redeem the securities at its discretion on specified dates, as well as upon the occurrence of certain events. Other early redemption provisions may exist, which could affect yield. Certain preferred securities are convertible into common stock of the issuer; therefore, their market prices can be sensitive to changes in the value of the issuer's common stock. Some preferred securities are perpetual, meaning they have no stated maturity date. In the case of preferred securities with a stated maturity date, the issuer may, under certain circumstances, extend this date at its discretion. Extension of maturity date will delay final repayment on the securities. Before investing, please read the prospectus, which may be located on the SEC's EDGAR system, to understand the terms, conditions, and specific features of the security.

The Fidelity Mutual Fund Evaluator is a research tool provided to help self-directed investors evaluate these types of securities. The criteria and inputs entered are at the sole discretion of the user, and all screens or strategies with preselected criteria (including expert ones) are solely for the convenience of the user. Information supplied or obtained from these Screeners is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell securities, or a recommendation or endorsement by Fidelity of any security or investment strategy. Fidelity does not endorse or adopt any particular investment strategy or approach to screening or evaluating stocks, preferred securities, exchange-traded products, or closed-end funds. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from its use. Determine which securities are right for you based on your investment objectives, risk tolerance, financial situation, and other individual factors, and reevaluate them on a periodic basis. Investments in publicly traded MLPs involve risks and considerations that may differ from investments in common stock. Tax complexity risk: Master Limited Partnerships (MLPs) are generally considered pass-through entities for tax purposes and have special tax considerations. Pass-through entities may generate unrelated business taxable income (UBTI) that may have undesirable tax consequences for retirement accounts and other tax-exempt investors. If you hold MLP units, you are generally treated as a partner for tax purposes and will be issued a Schedule K-1 (Form 1065) rather than a Form 1099 form for use in filling out your tax return. A K-1 lists the partner's share of income, deductions, credits, and other tax items. If the MLP has operations in multiple states, you may need to file a separate tax return in each state. An MLP that is treated as a corporation in the United States rather than a pass-through entity for federal income tax purposes would be obligated to pay federal income tax on its income at the corporate tax rate. In this case, the amount of cash available for distribution by the MLP would be reduced and part or all of the distributions made could be taxed entirely as dividend income. In this case a Form 1099 would be furnished rather than a Schedule K-1. Please see the MLP’s website, SEC filings, or most recent shareholder report for further details about tax treatment of your investments. Legislative risk: The tax treatment of publicly traded MLPs could be subject to potential legislative, judicial, or administrative changes, possibly on a retroactive basis. Any such changes in tax treatment could negatively impact the value of an investment in an MLP. Concentration risk: Many MLPs are concentrated in the energy infrastructure sector. This narrow focus of MLPs may present considerably more risk than a diversified investment across numerous sectors of the economy. Market risk: MLPs may exhibit high volatility particularly during periods of economic stress or due to other events impacting the particular sector or industry in which an MLP operates. Interest rate risk: The market prices of MLPs are sensitive to changes in interest rates. As interest rates rise, the prices of MLP units may decline (and vice versa). Rising interest rates could also increase the MLP’s cost of capital which may limit potential growth through acquisition or expansion and reduce distribution growth rates. Distribution policy risk: All or a portion of an MLP’s distribution may consist of a return of capital from your original investment. MLP unit holders should not assume that the source of a distribution is net profit from the MLP’s operations. Liquidity risk: Despite the fact that MLPs are publicly traded, investments in MLPs may be relatively illiquid due to their unique investment strategy, asset concentration or other factors. Lack of liquidity can negatively impact your ability to sell MLP units. Additionally, should a secondary market exist, investors who need to sell MLP units may be subject to a significant loss. Commodity price risk: The price of MLP units may be negatively impacted by fluctuations in commodity prices. A significant decrease in the production or supply or sustained reduced demand for natural gas, oil, or other energy commodities would limit revenue and cash flows of MLPs and, therefore, the ability of MLPs to make distributions to unit holders. Regulatory risk: The assets of MLPs tend to be heavily regulated by federal and state governments. Changes in regulation can adversely impact an MLP’s profitability and therefore the value of MLP units. Conflicts of Interest: The general partners of an MLP typically have limited fiduciary duties to the MLP and may have conflicts of interest which could result in the general partners favoring its own interests over the MLP’s interests.

Value stocks can perform differently from other types of stocks, and can continue to be undervalued by the market for long periods of time.

The gold industry can be significantly affected by international monetary and political developments such as currency devaluations or revaluations, central bank movements, economic and social conditions within a country, trade imbalances, or trade or currency restrictions between countries.

Fluctuations in the price of gold often dramatically affect the profitability of companies in the gold sector.

Changes in the political or economic climate, especially in gold producing countries such as South Africa and the former Soviet Union, may have a direct impact on the price of gold worldwide.

The gold industry is extremely volatile, and investing directly in physical gold may not be appropriate for most investors.

Bullion and coin investments in FBS accounts are not covered by either the SIPC or insurance "in excess of SIPC" coverage of FBS or NFS.

Indexes are unmanaged. It is not possible to invest directly in an index.

The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917