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 yielding near historic lows, the tools investors used in the past to generate income may no longer be as effective. The question is, where can investors go to find income in today’s markets?
The History of Treasury Yields
(January 1, 1962 – December 31, 2022)
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. Fund performance may be obtained by calling 1.855.LCFUNDS (1.855.523.8637).
Annual Income Comparisons Over Time
By analyzing the income generated by certain income-oriented strategies, we can see the effect over time that the current low-yielding market is having. The graph below illustrates the annual income generated by hypothetical $100,000 bond investments at various points in time.
Above graph illustrates the performance of hypothetical $100,000 investments made 12/01/1992, 12/01/2002, 12/01/2012, and 12/01/2022. Rates for above time periods: 10-year Treasury 6.70%, 3.83%, 1.78%, and 3.88% respectively, and Corporate bonds (represented by Moody’s Seasoned Aaa Corporate Bond Yield) 7.91%, 6.09%, 3.67%, and 4.70%, 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.
Looking Beyond Bonds
Given the relatively low interest rate environment, pass-through securities are becoming more attractive as investors focus on income-oriented investments. The current income 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 12/31/22)
Bonds are represented by the Bloomberg US 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. 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. Business Development Companies (BDCs) are represented by the S&P BDC Index. One cannot invest directly in an index.
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