Using Total Return to Meet Your Clients' Income Needs

Next the example invests $300,000 in three passive, high dividend yielding equity ETFs: OUSA, O’Shares FTSE US Quality Dividend ETF; DVY, iShares Select Dividend ETF; and HDV, iShares Core High Dividend ETF. Multiple ETFs are intentionally used to diversify from over reliance on one asset class such as Utilities or REITs. Each ETF follows a different index and together they could produce a dividend yield that is more than 50% higher than the S&P 500. This core equity allocation does much of the heavy lifting…it is positioned to grow over time and should provide an elevated income stream for the client.


Finally, the $300k Growth Equity allocation could be equally invested into two tactical growth ETF strategies. Of course we are biased and have used two of our strategies which we know well. However, you could use other tactical strategies that seek to provide defense when markets struggle. The purpose here is to show the benefit of diversification using one ETF strategy that is tactically constrained to the sectors of the S&P 500 and the second being a tactically unconstrained, global growth strategy. Tactical strategies can be selected where the defensive mechanism used by each can vary. For example a tactically constrained sector strategy may use cash for a defensive position while a tactically unconstrained, global growth strategy may remain fully invested and rely on geographical and asset class selection to try to avoid failing markets. The idea, in general, is to seek diversification by using multiple, actively managed portfolios.

The results of this sample portfolio construct shows numerous advantages. The portfolio is a 60% equity/40% fixed income portfolio. It has exposure to both international and domestic bond and equity. While the portfolio above is tilted to large cap equity, all market caps can be used in the allocation. Thirty percent of the portfolio has the ability to be defensive during periods of market failure and 2.5 years of income are in more conservative positions to help ensure clients can take their withdrawals without compounding the negative effects of a bear market. The portfolio is designed to meet both current and future income needs by allowing for growth to counter the effects of inflation. Most importantly, this total return construction should smooth out portfolio drawdown and volatility when compared to an all equity portfolio, allow the client to remain invested, and help them avoid making emotional buy/sell decisions at the worst possible times.

David Haviland is a Managing Partner and Portfolio Manager at Beaumont Capital Partners, a participant in the ETF Strategist Channel.

1  Source: U.S. Treasury
2 Sources: S&P 500,
3  Source:

* The Target Yield % are based on the average 30-day yield for the ETFs listed within each category as of the date provided. The yield for the BCM strategies is based on the positions within the strategies as of the date listed.

This material is provided for informational purposes only and should not be taken as investment advice. Each client has their own unique circumstances and the investment themes described above may not be appropriate for all investors but rather seeks to illustrate the Total Return concept in portfolio construction. The material may contain forward or backward-looking statements regarding intent, beliefs regarding current or past expectations. Any conclusions or assumptions described are to illustrate potential benefits, however are not guaranteed. The information presented is based on data obtained from third party sources. Although it is believed to be accurate, no representation or warranty is made as to its accuracy or completeness.

Beaumont Capital Management (BCM) is a tactical ETF strategist and use the ETFs listed above when investing its strategies. Several ETF families were included to illustrate there are a number of choices and countless combinations of ETFs that can be used to implement the Total Return concept. BCM is not recommending any ETF, or ETF family over another.

Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against loss. An investment cannot be made directly in an index.

Sector investments concentrate in a particular industry and the investments’ performance could depend heavily on the performance of that industry and be more volatile than the performance of less concentrated investment options and the market as a whole. Foreign markets, particularly emerging markets, can be more volatile than U.S. markets due to increased political, regulatory, social or economic uncertainties. Fixed Income investments include interest rate and inflation risks. All investments have inherent risks including principal risk.

The Standard & Poor’s (S&P) 500® Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalization U.S. stocks. Indices are not managed and do not incur fees or expenses. “S&P 500®” is a registered mark of Standard & Poor’s Financial Services, LLC a division of McGraw Hill Financial, Inc.

Beaumont Capital Management is a separate division of Beaumont Financial Partners, LLC. All rights reserved. Copyright © 2016.