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A 7% Monthly Pay Yield That's Ideal For Retirement Income

HNDL's low correlation with other assets, moderate risk and high yield make it ideal for income seekers.

Even as interest rates are on the rise again, the idea of getting a high yield with low risk is very appealing.

10-year Treasuries are yielding nearly 3%, but there's been a substantial amount of downside risk in the process of getting there. With the S&P 500 still 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.

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The Strategy Shares Nasdaq 7HANDL Index ETF (HNDL) is one such fund that could be ideal for retirement income seekers.

Strategy Shares Nasdaq 7HANDL Index ETF (HNDL)

Strategy Shares Nasdaq 7HANDL Index ETF (HNDL)

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.

To achieve this, HNDL's portfolio is split into two components.

The first is the "Core Portfolio". It accounts for 50% of HNDL's overall portfolio. This component of the index seeks to provide broad exposure to the U.S. fixed-income and equity markets and consists of a 70% allocation to U.S. aggregate fixed-income ETFs and a 30% allocation to U.S. large capitalization equity ETFs.

The second is the "Explore Portfolio", which also accounts for 50% of the fund. It employs a 100% rules-based proprietary momentum-tilted, optimized allocation methodology to provide exposure to non-levered ETFs across a range of U.S. asset categories that have historically provided high levels of income. These asset classes include dividend stocks, covered calls, high yield bonds, preferreds and others.

The end product is a rough mix of 50% fixed income, 40% equities and 10% alternatives. The amount of leverage used is approximately 23% of the total portfolio's managed assets.

HNDL Portfolio Composition

HNDL Portfolio Composition

Some individual components, such as MLPs and mortgage-backed securities, will 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 modestly similar 55/45 portfolio allocation. It's also got some international exposure in there, so it's not an apples-to-apples comparison, but it's a good guideline since it's also meant to deliver more conservative portfolio income.

HNDL comes with around twice the risk of VTINX based on the daily standard deviation of returns, but comes out ahead in terms of risk-adjusted overall performance.

HNDL vs. Vanguard Retirement Income Fund

HNDL vs. Vanguard Retirement Income Fund

The advantage, of course, comes from HNDL yield. Despite comparable asset allocations and risk-adjusted returns, HNDL delivers 2 1/2 times the yield of VTINX.

HNDL vs. Vanguard Retirement Income Fund

HNDL vs. Vanguard Retirement Income Fund

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.

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