Real income from investments has been tough to find for the last few years. With banks currently offering just 0.15% for a six month certificate of deposit, ten year U.S. Treasuries paying 2.2% and longer term investment grade corporate bonds yielding 4%, the traditional choices of income producing sources are unappealing.
We offer a strategy for meaningful yield generated across multiple asset classes. The Absolute Yield portfolio invests in exchange traded funds (ETFs) to gain exposure across these asset classes, both in the U.S. and globally. ETFs provide diversification to reduce risk. The Absolute Yield portfolio’s volatility since inception in 2013 has been about 60% of the U.S. stock market.
What are these multiple asset classes? We use eight to ten stock, fixed income and alternative asset classes which tend to be non-correlated. No one class exceeds 20% of the portfolio. At this time, these asset classes are:
- Common Stocks: global companies that pay high dividends
- Business Development Companies: management companies that provide loans to smaller firms in their early stages of development, similar to venture capital firms
- Real Estate Investment Trusts (REITs): firms that generate income from real estate rentals and transactions
- Mortgage REITs: firms that derive income from investments in mortgages and mortgage debt
- Preferred Stocks: hybrids between stocks and bonds, which receive dividends before common stock owners
- Master Limited Partnerships: natural resource firms paying income from profits in developing, extracting, transporting and selling these resources
- U.S. High Yield Bonds: bonds rated below investment grade from U.S. based companies
- International/Emerging High Yield Bonds: bonds from countries which tend to have lower credit ratings due to increased economic and/or political risk
- Senior Bank Loans: floating rate bank loans to non-investment grade companies, collateralized by corporate assets
The yields on the various asset classes are illustrated in the chart below:
At the end of May, the Absolute Yield portfolio provided a yield of 5.95%.
As an actively managed portfolio, the Absolute Yield portfolio is constantly monitored by our investment management team for attractive opportunities to maximize yield with below average total volatility.
This is a proven strategy for investors willing to diversify from customary sources of fixed income. It is designed for people who can accept short term market fluctuations in an effort to boost income while seeking modest growth in the underlying assets over a full market cycle.
As always, it is important to keep your focus on the long term investment goals to which you are committed. Know your risk tolerance score, and continue to incorporate that into your investment program. Let time work on your behalf.
To expand on these Market Reflections or to discuss any of our investment portfolios, please do not hesitate to reach out to us at 775-674-2222