NEW YORK (TheStreet) -- Almost no other category of investing has experienced as much turmoil in the last 12 months as income investors.
Interest rates have been on a roller-coaster ride that has churned the landscape for core themes in fixed-income, real estate investment trusts, preferred stocks and even dividend-paying equities. Years of low volatility in many of these categories had lulled income seekers into a false sense of security that led to jolting changes in a short period of time.
Fortunately, we have seen stabilization in interest rates this year and fears of a stock market collapse have yet to materialize despite the best efforts of "top calling experts."
Now that we just closed out the first quarter, this is a perfect time to review your statements and assess the strengths and weaknesses of your portfolio. Through this analysis, you may find areas that can be adjusted to enhance your returns for the remainder of the year.
1. Lower your average fixed-income duration
You have probably heard the call to lower the average duration of your fixed-income holdings for some time now, but many investors are still finding themselves in the upper end of the yield curve. That makes your portfolio more sensitive to fluctuations in interest rates which could prove to be a mistake if we see rates move higher this year.One alternative exchange-traded fund that you may want to consider is the Vanguard Short-Term Corporate Bond Fund (VCSH), which invests in a portfolio of one- to three-year duration, investment-grade fixed-income. This ETF has been steadily rising over the last six months and will be less sensitive to changes in interest rates than a similar fund with higher average duration.
Another strategy to consider is moving to an actively managed mutual fund that is focused on interest rate risk and had success navigating those waters last year. 2. Resist high priced junk bonds Domestic high-yield bonds (otherwise known as junk bonds) have had a tremendous ride over the last several years. Low default rates and a thirst for yield have been tremendous drivers of asset prices in this sector. However, valuations have appeared to reach an extreme level that has, in turn, led to lower yields for new money being added to this space.
If you already own a junk bond ETF such as the iShares High Yield Corporate Bond ETF (HYG), I would continue to hang onto the position with the expectation that we may see a shift in credit at some point that would necessitate an exit from this holding. Prices are not indicating any kind of problem as of yet and the income streams are still solid for early adopters. However, there will come a time when it will make sense to switch to higher credit quality areas such as investment grade corporate bonds or mortgage securities.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV