(Bloomberg) -- In an inflation-lashed world where bonds are posting record losses, Wall Street issuers are betting investors hungry for income will instead lavish their millions on ETFs that ride stocks in order to deliver payouts.

At least four issuers have filed plans for so-called income exchange-traded funds in the past few weeks, while three more such products have started trading in the same period. The vehicles target a steady stream of income using a range of equity-based strategies, like buying dividend-paying companies or selling call options on the S&P 500. 

The funds are enjoying a surge in popularity as rampant inflation and recession fears whipsaw bonds, boosting the appeal of this alternative source of income. The JPMorgan Equity Premium Income ETF (JEPI), one of the biggest products in the space, is in the top 10 equity ETFs for inflows this year with a $5.4 billion haul that has nearly doubled its assets.

Yet skeptics warn that while the strategies may be able to mirror bond payouts, they don’t offer the same diversification. Investors as a result could wind up over-exposed to an equity market in turmoil.

“Dividend-focused and covered-call strategies aren’t really ‘income’ strategies but merely ‘equity-beta-in-income-clothing’,” said Ben Lavine, chief investment officer of 3D Asset Management Group. “These funds have a high sensitivity to equity volatility and shouldn’t be treated as income proxies for asset allocation purposes.”

The S&P 500 plunged into a bear market in June after the Federal Reserve unleashed its biggest rate hike since 1994 to tamp down the hottest inflation in four decades. 

That fueled losses across the fixed-income landscape as well, with 10-year Treasury yields soaring as high as 3.5% earlier in the month after entering 2022 near 1.5%. 

While higher yields should be catnip to income-hungry investors, the prospect of further rate rises -- and corresponding bond losses -- is helping keep buyers away. Meanwhile, the failure of bonds to hedge the drop in equities has tarnished their reputation as a portfolio diversifier.    

A filing for the FT Cboe Vest Rising Dividend Achievers Target Income ETF was made on Monday, joining applications for the John Hancock U.S. High Dividend ETF, the Amplify International Enhanced Dividend Income ETF and the NEOS S&P 500 High Income ETF.

Meanwhile, the USCF Dividend Income Fund (UDI) launched in June and the STF Tactical Growth & Income ETF (TUGN) debuted in May. The JPMorgan Realty Income ETF (JPRE) began trading in mid-May after converting from a mutual fund.

While the mini-boom in income funds is likely sustainable, it’s important that investors recognize these ETFs have materially different risk profiles than bonds, according to Nate Geraci of the ETF Store. 

“I worry that some investors don’t fully appreciate the new sources of risk they’re taking-on in an effort squeeze out a little extra juice,” said Geraci, president of the advisory firm. “The bottom line is that many of these products simply can’t replace the role of high quality bonds in a diversified portfolio.”

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