Mack Courter, founder, Courter Financial, Bellefonte, Pennsylvania:
This is such a tricky environment for income. With the Fed beginning to tighten, I’m finding myself limiting duration in bond portfolios. In addition, spreads between investment-grade and junk bonds are so narrow that junk bonds aren’t appealing either.
So, I’m putting the return of capital ahead of the return on capital with bond ETFs such as the iShares iBoxx $ Investment Grade Corporate Bond (LQD), the iShares MBS Fund (MBB) and the Schwab Intermediate-Term US Treasury ETF (SCHR).
I do, however, find consumer staples stocks appealing right now. I’m using the Vanguard Consumer Staples (VDC) in portfolios. It yields 3%, and is down 5% from its high in June.
David Haviland, managing partner & portfolio manager, Beaumont Capital Management, Needham, Massachusetts:
As a portfolio manager, I’m not sure I have a favorite income strategy per se. However, I do like the way our BCM Dynamic Global Fixed Income strategy has been dealing with the varying interest rate environments across the globe over the past three years. Our Global Fixed Income process risk-weights various bond subasset classes and invests in what the system considers to be the best risk/reward scenarios it can find within the specified universe of ETFs.
Now, as far as specific assets and ETFs, high-yield bonds and emerging market bonds have done very well so far in 2017. However, they appear to be getting long in the tooth in terms of both the yield and total returns they may be able to offer in the future.
When we’re building bond portfolios, we prefer to keep the duration slightly less than the Barclays Aggregate Bond Index, as intermediate and long-term interest rate trends are likely to be higher. We do like the actively managed SPDR DoubleLine Total Return Tactical ETF (TOTL).
The fund uses mortgages and some other bond subasset classes that may have slightly lower credits but are still mostly investment grade. Since the Agg has most of its holdings in the high end of the investment-grade spectrum, taking advantage of the lower end of the investment-grade spectrum to try to increase yield and total returns makes a lot of sense to us.
For those investors for whom an equity-income-based ETF is appropriate, we also like the O'Shares FTSE US Quality Dividend ETF (OUSA). This ETF focuses on higher-yielding equities with a well-defined overlay of high-quality and high-cash-flowing businesses.