Looking For Income

Potential Benefits of Diversifying Income Portfolios

In today’s market, the search for yield and income is more challenging than ever. With treasuries, corporate bonds, and bank products yields low, the tools investors used in the past to generate income may no longer be effective. The question is, where can investors go to find income in today’s environment?

The History of Treasury Yields

(January 1, 1962 – June 30, 2024)

Source: FRED Economic Data
Past performance is not a guarantee of future results. The referenced indices are shown for general market comparisons and are not meant to represent the Fund.

Annual Income Over Time

In analyzing the income generated by certain income-oriented strategies over time, we can see the effect of the current low-yielding market. The graph below illustrates the historical annual income from a hypothetical $100,000 bond investment at various points in time.

Above graph illustrates the performance of hypothetical $100,000 investments made 06/01/1994, 06/01/2004, 06/01/2014, and 06/01/2024. Rates for above time periods: 10-year Treasury 7.34%, 4.62%, 2.53%, and 4.36%, respectively and Corporate bonds (represented by Moody’s Seasoned Aaa Corporate Bond Yield©) 8.18%, 5.91%, 4.15%, and 5.13%, respectively. All scenarios assume distribution of income without reinvestment, and do not reflect the effect of any applicable sales charges or redemption fees. This graph is not intended to imply any future performance and represents past performance.

Beyond the Bond

Given today’s interest rate environment, pass-through securities have become more attractive as investors focus on income-oriented investments. The current yields in these sectors are significantly higher than those of traditional investments such as stocks and bonds, and we believe they can provide a dynamic complement to an income portfolio.

Income Sector Yields vs. Traditional Investments

(Last twelve months as of 6/30/24)

Bonds are represented by the Bloomberg U.S. Aggregate Bond Index . Stocks are represented by the S&P 500 Index. REITS are represented by the MSCI US REIT Index. MLPs are represented by the Alerian MLP Index. Business Development Companies (BDCs) are represented by the S&P BDC Index. Closed-End Funds (CEFs) are represented by the S-Network Closed End Fund Index. Preferred stocks are represented by the ICE BofAML Core Fixed Rate Preferred Index. High Yields are represented by the ICE BofAML US High Yield Master II Index. One cannot invest directly in an index.

Closed-end funds are closed to new investors. Closed-end funds do not trade at their NAVs. Instead, their share prices are based on the supply of and demand for their funds. Consequently, closed-end funds can trade at premiums or discounts to their NAVs. BDCs being regulated investment companies, they must distribute over 90% of their profits to shareholders. BDC holdings may be invested in illiquid securities subjective to fair value estimates and may take sudden and quick losses. MLPs issue units instead of shares. These units are often traded on nationals stock exchanges. Unit holders are limited partners in the MLP. They are allocated a share of the MLP’s income, deductions, losses and credits on a K-1 tax form. This may complicate tax filings for some investors. Preferred stock is a type of stock which may have any combination of features not possessed by common stock including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument. Preferred stocks are higher ranking to common stock, but subordinate to bonds in terms of claim and may have priority over common stock in the payment of dividends and upon liquidation. The REIT market is smaller than the broader equity and bond markets and often trades with less liquidity than these markets depending upon the size of the individual issue and the demand of these securities. Tax features of a bond, stock or REIT may vary based on individual circumstances. REITs may have lower trading volumes and may be subject to more abrupt or erratic price movements than the overall securities markets. Stocks are generally perceived to have more financial risk than bonds in that bond holders have a claim on firm operations or assets that is senior to that of equity holders. In addition, stock prices are generally more volatile than bond prices. A stock may trade with more or less liquidity than a bond depending on the number of shares and bonds outstanding, the size of the company, and the demand for the securities.

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