As 2020 approaches, income-minded investors will need to consider how to manage potential risks ahead while still maintaining the yield potential of a well-rounded investment portfolio in a low interest rate environment.
In this upcoming webcast, 2020 Income Investing Outlook: What Advisors Need to Know, Fran Rodilosso, VanEck Head of Fixed Income ETF Portfolio Management, and Brandon Rakszawski, VanEck Director, ETF Product Development, will look to where the markets are heading and potential strategies to help enhance an income-generating portfolio
Topics will include an overview of 2019 and how 2020 is shaping up, potential risks that bond investors face in the year ahead, income strategies that may help address risks and potentially enhance returns, and how financial advisors can incorporate equity-income, and fixed-income into a portfolio.
For example, if you want to put your cash to work but are not ready to commit to long-term risks, fixed-income investors may consider a floating rate bond ETF, such as the VanEck Vectors Investment Grade Floating Rate (NYSEArca: FLTR) to act an alternative to traditional cash instruments. FLTR shows a 2.09% 30-day SEC yield and an effective duration of 0.13 years.
As a result of the safe and conservative nature of floating rate bonds, investors should not expect high yields. Nevertheless, Treasury money market funds are so starved for yield that anything with an extra basis point or two and the quality and liquidity of a Treasury security will provide an attractive alternative.
Additionally, Investors looking for a high-yield, equity income position may consider Business Development Company, or BDC, exposure to complement a traditional income-oriented portfolio. BDCs are comprised of companies that fund small- to mid-sized private companies, which are usually rated below investment grade or not rated at all. Furthermore, these companies should also do relatively well in the kind of environment ahead where many expect an increase in interest rates since most BDC loans set to float with interest rate benchmarks.
For example, the VanEck Vectors BDC Income ETF (NYSEArca: BIZD) offers a pure play to BDCs. According to VanEck, 80% of the portfolio is allocated to floating rate loans, there is limited rate risk. The ETF also comes with an attractive 9.19% 30-day SEC yield.
For investors seeking value in credit, the Fallen Angel High Yield Bond ETF (ANGL) can be used for higher quality high yield bonds with an embedded value proposition while the Preferred Securities ex-Financials ETF (PFXF) is an option for high income and capital appreciation potential.
To diversify away from the U.S. and benefit from emerging markets growth, consider the Emerging Markets High Yield Bond ETF (HYEM) to diversify a global high yield bond allocation while the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC) is an attractive play for attractive yield potential and currency exposure.
Finally, for dividends with a focus on quality and valuations, the Morningstar Durable Dividend ETF (DURA) is a play for sustainable and attractive dividend yields at attractive prices.
Financial advisors who are interested in learning more about attractive income strategies can register for the Thursday, December 12 webcast here.