The Importance of Diversification in Your Investment Portfolio
When it comes to investing, having a diversified portfolio is key. It’s Investing 101, but many people overlook the potential income they could be earning by focusing solely on traditional stocks and bonds. Let’s take a closer look at how diversification can impact your portfolio:
Comparing Yields: Stock ETFs vs. High-Yield Bond ETFs
- The popular S&P 500 tracker ETF (SPY) yields a microscopic 1.2%.
- On the other hand, the SPDR Bloomberg High-Yield Bond ETF (JNK) yields 6.4%.
- By averaging the yields of these two ETFs, you get a combined yield of 3.8%.
3 Clicks for Instant Diversification—and an 8.1% Yield
Closed-end funds (CEFs) offer a unique opportunity for investors to achieve diversification with significantly higher yields. Here are three CEFs that, when combined, offer an average yield of 8.1%:
Stocks: Skip SPY, Go With ADX Instead
The Adams Diversified Equity Fund (ADX) offers an impressive 8.2% yield and a long track record of stability and reliability. With a dividend policy that ensures consistent payouts, ADX is a solid alternative to traditional stock ETFs like SPY.
ADX Outruns SPY, Driven By Dividends
ADX trades at an 11.7% discount to NAV, providing investors with the opportunity to access top-quality stocks at a discounted price.
ADX’s Discount Drops, With a Rebound Likely
The recent changes in ADX’s dividend policy have attracted investors back to the fund, leading to a narrower discount to NAV. As interest rates decline, ADX’s high yield and performance history make it an attractive option for income-seekers.
High-Yield Bonds: Think BGH, Not JNK
The Barings Global Short Duration High Yield Fund (BGH) focuses on high-yield corporate bonds with an 8.4% yield. By investing in short-term bonds, BGH aims to reduce the risks associated with market volatility.
BGH’s Discount Sale Is Ending
Despite currently trading at a discount, BGH’s wide discount is expected to narrow as more investors seek higher yields in the bond market.
The All ’Rounder: The Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO)
The Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) provides exposure to top US large caps like Microsoft and Apple, offering investors a well-rounded investment option.
Analysis
Diversifying your investment portfolio is crucial for managing risk and maximizing returns. By combining different asset classes like stocks and high-yield bonds, investors can achieve a balance of income and stability. Closed-end funds offer a unique opportunity to access higher yields while maintaining diversification. Funds like ADX and BGH provide investors with consistent payouts and the potential for capital appreciation. As interest rates decline and investors seek higher yields, these funds are poised to deliver strong performance in the current market environment.
Investing in a Diversified Portfolio
As the world’s top investment manager, it is crucial to understand the composition of a well-rounded portfolio. US stocks play a significant role, making up 48% of the total allocation. However, diversification is key, and the next-biggest slice (36%) goes to international equities like Nestle SA, Sanofi, and Compass Group PLC, providing a global perspective and exposure to different markets.
The remaining portion (around 16%) is allocated to fixed-income assets, primarily investment-grade bonds. These bonds offer stability to the portfolio, balancing out the potential volatility of equities. The overall portfolio delivers a 7.8% dividend, paid monthly, providing a steady stream of income for investors. Additionally, management has recently raised the dividend, indicating strong performance and commitment to shareholder returns.
ETO Shareholders Get a Raise
Source: Income Calendar
Trading at an 8.7% discount to NAV, BGH presents an attractive opportunity for investors seeking both growth and income at a bargain price. The discount on BGH is gradually diminishing, indicating potential upside for investors.
Another Discount With Momentum
The fund has delivered a robust annualized total return of 9.6% over the last decade, showcasing strong performance. Coupled with a high, rising monthly payout and a decreasing discount, BGH presents a compelling investment opportunity for investors.
Why Wall Street Is Hiding CEFs From You (Including These Five Payers Up To 9.6%)
Closed-end funds (CEFs) like the ones mentioned above offer significant gains and income potential. However, they are often overshadowed by exchange-traded funds (ETFs) in the investment landscape. Wall Street and the media tend to promote ETFs due to their simplicity and ease of selling to investors.
Investors may overlook the benefits of CEFs, such as outperforming benchmarks like SPY and providing higher income. It is essential to delve deeper into investment options beyond traditional offerings to maximize returns and diversify portfolios effectively.
Consider exploring the full story on CEFs and the potential they hold for investors in a Special Investor Bulletin. The report reveals five CEFs with outsized yields, trading at discounts, and providing instant diversification.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who identify undervalued stocks and funds in the U.S. markets. Click here to learn more about their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement.”
Analysis of the Content
The rewritten content emphasizes the importance of diversification in investment portfolios, showcasing a mix of US stocks, international equities, and fixed-income assets for a balanced approach. The detailed breakdown of allocation percentages and the rationale behind each investment category helps readers understand the composition of a well-rounded portfolio.
The discussion on specific funds like BGH highlights their potential for growth, income generation, and discount opportunities, making them attractive investment options. The comparison between CEFs and ETFs sheds light on the benefits of exploring alternative investment vehicles beyond conventional choices.
Overall, the content provides valuable insights for both seasoned investors and beginners, encouraging them to consider diversification, explore different asset classes, and maximize returns through strategic investment decisions.