Rethinking Asset Allocation Through an Income Lens | ETF Trends

Many investors may think they are allocating assets tactically, but the old 60% in global equities and 40% in bonds split that was extolled for so many years, may not be as tactical as some investors think.

Multi-asset exchange traded funds (ETFs), such as the SPDR SSgA Income Allocation ETF (NYSEArca: INKM), can help investors put together more tactical asset allocations with the convenience of a single fund.

INKM holds ETFs that track yield producing assets like high-yield corporate bonds, Treasuries, dividend stocks, preferred stocks and real estate securities.

“The standard 60% equity/40% fixed income portfolio of a simple mix of global equities and aggregate bonds has seen declining returns over the last few years, both on a long- and short-term basis—evidenced by the standard allocation posting a return in 2018 that was 14% below its 30-year historical median,” said State Street in a recent note.


INKM, which recently turned seven years old, is an actively managed ETF. The fund’s primary benchmark is the MSCI World Index and it secondary benchmark is the Bloomberg Barclays US Long Government/Credit Bond Index.

INKM “combines tactical allocations among US government and corporate bonds; US convertible and preferred securities; global REITs; and domestic and international equities with a focus on dividends,” according to State Street.

Top holdings in INKM currently include the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), the second-largest high-yield corporate bond ETF; SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (NYSEArca: EBND) and the SPDR Portfolio S&P 500 High Dividend ETF (NYSEArca: SPYD).

SPYD tries to reflect the performance of the S&P 500 High Dividend Index, which is comprised of the top 80 dividend-paying securities listed on the S&P 500 Index, based on dividend yield.

“While strategic asset allocation is designed to meet long-term investment goals within a certain risk budget, tactical asset allocation (TAA) seeks to take advantage of mispricing opportunities at the asset class level or manage risks over the short term,” said State Street. “Based on forward-looking signals rather than the reactive signals that govern a portfolio’s strategic core allocation, tactical allocations can proactively de-risk portfolios when you expect a market downturn, and they can increase risk when you anticipate a rise in the markets.”

For more on ETF investing plays, visit our Tactical Allocation Channel.

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.