Investors managing their money as part of retirement planning often have different needs than during their growth and accumulation years. They typically are more focused on income and capital preservation and avoid risk that could evaporate their hard-earned funds.
With that goal in mind, building out a diversified portfolio using both core and strategic positions can enhance your dividend yield and provide a strong base that you can count on when doing your retirement planning.
Strategic or tactical holdings can be an excellent way to focus a portion of your portfolio toward an area of the market that you feel offers a unique value proposition.
By incorporating these themes via exchange-traded funds, you can do this for little cost, and with transparency and daily liquidity.
Cambria Shareholder Yield ETF (SYLD)
For the equity sleeve of a retirement portfolio, an excellent strategic opportunity is through the Cambria Shareholder Yield ETF (SYLD). This actively managed basket of 100 domestic stocks including Southwest Airlines Co (LUV) and Western Digital Corp (WDC) is selected according to companies that are paying a dividend, buying back shares, or paying down debt on their balance sheets.
The end result is a unique basket of high-quality stocks that don’t necessarily overlap a traditional high-dividend-yield or dividend growth-oriented index. The portfolio is primarily centered around large-cap stocks, with approximately 25% geared toward small- and mid-cap names. Financials, technology and consumer discretionary companies make up the top three sectors in SYLD.
iShares Morningstar Multi-Asset Income ETF (IYLD)
Another unique income investment is the iShares Morningstar Multi-Asset Income ETF (IYLD). This ETF uses a “fund of funds” approach to select various stock, bond, and alternative asset classes in well-known dividend paying sectors.
IYLD should primarily be used as a strategic bet on credit as the underlying components are weighted more towards high yield corporate bonds, mortgage REITs, and dividend paying stocks. There also is some modest exposure to Treasury and investment-grade bonds to help balance volatility as well.
Because of the credit heavy exposure, the 12-month trailing yield on this ETF is currently at 5.5%, and income is paid monthly to shareholders — a bonus for retirement planning. A sustained low interest rate environment and continued strength in equities will provide a nice environment for IYLD to prosper.
iShares U.S. Preferred Stock ETF (PFF)
Lastly, the iShares U.S. Preferred Stock ETF (PFF) is an area of the market that is worth noting for a retirement portfolio. I classify PFF in the “alternative income” category because of its equity and debt characteristics. Preferred stocks pay a fixed dividend, but place you higher on the capital structure than common stock holders.
Alternative asset classes often have above-average yields and non-correlated returns that make for excellent strategic positions to balance out traditional stock and fixed-income holdings.
PFF has a current 30-day SEC yield of 5.6% and has shown itself to be a worthy holding for anyone doing retirement planning and focusing on income and capital appreciation as interest rates have continued to decline.
David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management. As of this writing, FMD held PFF for client accounts. Learn More: Why I love ETFs, And You Should Too