Income-Investing Picks for a Recession
Some consequences of an economic downturn work to the benefit of fixed-income investors. Here are three fund ideas that fit the bill.


If you are furious –or just frustrated –with the inflation readings, the price of fuel and the daily trading drama on Wall Street, remember that we have seen this trouble before, survived and recovered.
Surely you know the proverb that bad news can be good news for financial markets. If the next recession is not yet official, there are signs it is gathering. But some consequences of a standard economic downturn work to the benefit of fixed-income investors and are tolerable for stock and fund holders who diversify and pursue high dividends. There is no cause to freak out.
Let's start with bonds. It is generally too late to sell and quite likely worth selective buying. Since the 10-year Treasury yield topped at 3.48% on June 13, it has dropped to roughly 3%, a bond-price rally that is allaying the year-to-date losses in popular funds.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
BNY Mellon Municipal bond Infrastructure Fund (DMB, $13), a closed-end fund and a longtime recommendation of Kiplinger's Investing for Income, bottomed on May 23, down 24% for the year. The fund is now off less than 10% for 2022 as its deep discount to net asset value has reverted to a premium. The 5% yield should be the equivalent of 7% or more if you are in a high tax bracket. The duration is moderate, and most of its bonds are investment grade. (Returns and other data are as of July 8; investments I like are in bold.)
A Fork in the Road for Bond Yields
Remember that everything you see and hear about the Federal Reserve's interest-rate-raising campaign is tethered to short-term rates. The goal is to fight inflation at the cost of an economic slowdown, which means long-term bond yields, including mortgage rates, are intended to level off or fall. Indeed, long Treasury and investment-grade corporate rates could fall harder once the bond world sees a two-month easing of the inflation readings, which would extend this bond rally.
"The antidote to all this pessimism is a change in the inflation outlook," says Ken Leech, chief investment officer for Western Asset Management. Leech loves that gasoline futures are plunging, as are the prices of fertilizer, lumber and more. The Bloomberg Commodity Index is down 15% from early June. That bolsters the dollar, which in turn is disinflationary. The Invesco Dollar-Bullish ETF (UUP, $29) is up 11.5% for 2022.
Turning to stocks, the Dow industrials and the S&P 500 will stay susceptible to news-driven 2% daily swings. But there is a convincing argument for dividend-payers. So far this year, for example, the surprise ace among all blue-chip mutual funds is Federated Hermes Strategic Value Dividend (SVAAX), with a 5% gain. (You can buy the fund with no sales charge at major online brokerage platforms.) Lest you confuse this with an oil fund, its 16.5% energy weighting trails stakes in healthcare and utilities. Returns lag sis-boom-bah bull markets, but the fund is rapidly closing its long-term total-return gap with the struggling Vanguard and Franklin dividend-growth funds. Plus, the Federated fund yields 3.9%.
I know the public is edgy that inflation will stay high. But what seems like bad economic news can be a balm for your portfolio. The rest of 2022 will be better than the first half for many investments, even if recession clouds close in sooner rather than later.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Kosnett is the editor of Kiplinger Investing for Income and writes the "Cash in Hand" column for Kiplinger Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.
-
A Smart Way to Combat Economic Rollercoasters
Savings With rates on CDs remaining high for now, a CD ladder allows you to maximize your returns with flexibility to your cash when you need it.
-
Why Canadian Snowbirds Are Ditching Their US Homes
From rising costs to political tensions, here’s why foreign homeowners are selling and what it could mean for the American economy.
-
Stock Market Today: Markets Discount Another U.S. Downgrade
After Friday's closing bell, Moody's followed Standard & Poor's and Fitch and cut its rating on U.S. government debt.
-
Stock Market Today: Investors Look on the Bright Side
A generally good week closes on another positive note, as investors, traders and speculators look for fresh catalysts.
-
Stock Market Today: Stocks Climb More Walls of Worry
Volatility is back in a normal range, and the trend for the main equity indexes remains positive despite specific and general headwinds.
-
Stock Market Today: Nasdaq Outperforms as Big Tech Rallies
The Dow Jones Industrial Average closed lower for a second day as Amgen and Merck fell.
-
Stock Market Today: UnitedHealth Drags on Dow After CEO Splits
UNH created headwinds for the price-weighted Dow on news that its embattled CEO, Andrew Witty, is stepping down.
-
Stock Market Today: Dow Gains 1,160 Points on U.S.-China Trade Deal
The two countries agreed to a 90-day truce that will give them time to work on more substantive trade negotiations.
-
Stock Market Today: Investors Weigh Weekend Negotiations
Investors, traders and speculators will look to Switzerland for answers about the most compelling issue confronting global markets.
-
Stock Market Today: Stocks Rise on Trump Trade Deal
The U.S. and the U.K. agreed to a trade agreement that includes lower automobile tariffs.