Solving the Income Riddle – Mike Venuto in

calc asked advisors how best to obtain yield in the current low-rate environment, which is characterized by very low rates and low inflation, even as the Federal Reserve prepares financial markets for the possibility of its first rate increase in short-term borrowing rates in nine years. Here’s what Michael Venuto had to say:

One of the techniques Toroso uses to address the desire for yield in today’s very difficult environment is to build an “income barbell portfolio.” One example of this approach combines specific weightings of cashlike ETFs such as the Guggenheim Enhanced Short Duration Bond ETF (GSY | B) and income-oriented ETFs such as the PowerShares CEF Income Composite Portfolio (PCEF).

Using the two, we can synthetically construct a higher-yielding and less volatile portfolio than investors can find with traditional bond ETFs. A combination of 56% PCEF and 44% GSY provides a yield of about 5% while maintaining 44% of the portfolio in ultra-short-term lower-risk fixed income. By actively rebalancing back to the desired yield, when dislocations occur in the fixed-income market, investors should be able to maintain a 5% yield with relatively low volatility. To learn more about this, look at the article we wrote about this in a recent article on titled “The ETF ‘Barbell’ Income Solution.”

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