Stock market stress got you down? Headlines point to continued questions and uncertainty surrounding everything from tech to debt to interest rates. Those factors are enough to make a lot of investors doubt the market’s outlook. To get ahead of potential market downswings, investors may want to look at some ballast for their portfolios. Current income can play that role not only for those nearing retirement but younger investors, too.
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Why look into current income now? Here are three risks that may merit some padding in investor holdings.
First, and perhaps the foremost factor to consider, are the growing questions surrounding the tech space. Megacap tech firms have moved mountains for investors in recent years. Indeed, just a handful — the Magnificent Seven come to mind — provided much of the S&P 500’s performance last year. With the Fed looking closer at interest rate cuts, the segments poised to benefit may not be tech but more value-oriented categories. That rotation comes amid further questions about AI’s ability to deliver on its promises.
That interest rate question highlights the second item to watch. Inflation remains a stubborn thorn not only in the side of the Fed chair but also investors writ large. Many market watchers — including the Trump administration — are hoping for a rate cut. While the Fed signaled Friday that a cut may be coming in September, that could change or be less than desired.
Finally, precariously high and record levels of margin debt loom over markets. While not inherently representative of a “market top,” that adds some notable instability for markets.
That broad uncertainty speaks to the merits of adding current income. An active ETF like TEQI can combine that income with an actively managed portfolio based on a mix of valuation and quality metrics. The T. Rowe Price Equity Income ETF (TEQI) charges a 54 basis point fee for its approach. The strategy actively invests in global large-cap firms meeting managers’ price-to-earnings ratio targets, above-average dividend yield, and low stock prices relative to earnings.
The strategy has delivered an annualized average return of 14.4% over the last five years, according to ETF Database data. That outperformed both its ETF Database Category and FactSet Segment averages. Per T. Rowe Price data, the fund offered a 1.65% dividend yield, per YCharts. Taken together, it could make for a helpful addition to prepare portfolios for turbulence ahead.
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