ETF investors trying to boost income in their portfolios have their work cut out for them with the Federal Reserve committed to keeping yields low in U.S. Treasury bonds. Dividend stocks and high-yield ETFs are alternatives, but investors need to be mindful when adding more risk to their portfolios.
Traditional income-oriented investors are finding that advisors will build portfolios custom-made for their goals. Ari Weinberg for WSJ.com reports that there are different strategies created from several advisory firms, all with differences in allocations to fixed-income. [Regulator Warns on ‘Yield Chasing’]
When investors select a mix of ETFs, advisers can choose from a wider variety of sectors, such as non-investment grade or international debt. In turn, risk levels can be adjusted and catered to meet specific needs. [Choosing the Right Dividend ETF]
Here are four outlooks by four different companies in the WSJ article:
- Clark Capital Management Group: In the Clark Navigator Fixed Income Total Return strategy, about 97% is dedicated to high-yield corporate bond ETFs. The higher income from below-investment-grade bonds will provide more of a cushion if and when interest rates rise, Clark Capital believes. [Popular High-Yield Bond ETFs Stumble]
- Integrated Capital Management, LLC: The firm has set up this portfolio, ICM Total Return strategy, to yield a half percentage point more than the Barclays Aggregate index, which currently yields 2%. The strategy favors corporate credit over government debt, and takes on more duration risk.
- Cougar Capital Investments LP.: The strategy, Cougar Global Mar 6, is a primary one for generating income with low risk—with the aim of having very little volatility. The firm seeks to limit price drops due to market swings to 5% based on modeling ETFs and indexes against a survey of macroeconomic forecasts. About 45% of the portfolio is invested in U.S. investment grade mortgage-backed securities. The government conservatorship of Fannie Mae and Freddie Mac ensure credit risk is eliminated.
- Parker/Hunter Asset Management: The Dynamic Income strategy employs a mix of ETFs and closed-end funds designed to deliver a long term return designed to deliver a long-term return that is two percentage points above inflation, measured by the Consumer Price Index. High dividend stocks and a small allocation to MLPs round out the portfolio. [Dividend ETFs Spike as Market Volatility Increases]
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.