In the current low rate environment, the idea of getting a high yield with low risk is very appealing.
With 10-year Treasuries yielding just 0.7% and the S&P 500 earning less than 2%, income seekers need to get a bit more creative in finding ways to generate higher yields without exposing themselves to too much risk.
Finding ETFs that can generate high yields while only taking comparable risk to lower-yielding alternatives can be a great income enhancement strategy.
The Strategy Shares Nasdaq 7HANDL Index ETF (HNDL) is one such fund that could be ideal for retirement income seekers.
HNDL is a balanced portfolio of low-cost ETFs that provides exposure to U.S. equities, bonds and alternative investments. It also utilizes a modest amount of leverage in order to achieve a target 7% annualized distribution yield paid monthly.
The fund uses a 30/70 mix of stock & bond ETFs and uses additional alternative investments, such as covered calls and leverage, in order to generate its high yield.
Some individual components, such as MLPs and mortgage-backed securities, are come with higher risk, but when combined with the rest of the portfolio offer some nice risk/reward potential.
I'm using the Vanguard Target Retirement Income Fund (VTINX) as HNDL's comparable because it uses a similar 30/70 portfolio. HNDL comes with a somewhat higher absolute risk level overall, but has produced nearly identical risk-adjusted performance.
The advantage, of course, comes from HNDL yield. Despite comparable asset allocations and risk-adjusted returns, HNDL delivers nearly triple the yield of VTINX.
For retirement investors, HNDL offers two key advantages:
- It pays a monthly distribution, which is perfect for investors looking to live off of portfolio income
- It targets a steady 7% distribution yield, which provides a steady, predictable income for those who need it most
It's relatively easy to find high yields from risky sectors, such as junk bonds, mortgage REITs and fully leveraged products. It's tougher to find high yields from more conservative portfolios.
HNDL is an intriguing option for those looking for a targeted, predictable retirement income from their portfolios.
More ETF Research
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