The rationale for this ETF portfolio is as follows: It delivers a 4.7% average
yield and has returned 4.88% YTD just on the market appreciation alone.
ETF Portfolio Delivers Income With Diversification Beta Yield YTD MkT % Vanguard Utilities (VPU) 0.5 3.76% 9.51% Deutsche Bank AG ELEMENTS Dogs (DOD) 1.09 4.62% 0.27% iShares iBoxx $ Investment Grad(LQD) 1.94 4.60% 6.82% JP Morgan Alerian ETN (AMJ) 0.7 5.30% 0.15% PowerShares Emerging Mkts Sovereign Debt (PCY) 2.51 5.69% 2.30% iShares Barclays TIPS Bond (TIP) 1.42 4.24% 10.23% Average 0.79 4.70% 4.88%
Vanguard Utilities (VPU). Low management cost diversified basket of utilities.
Utilities will continue to do well in a deflationary environment, slow growth
environment.The biggest risk to ownership here is if inflation picks up, coal
and natural gas pricesrise and regulators refuse to allow costs to get passed
on to customers because of dismalpolitics and high unemployment. Paying your
utility base is the most inelastic of all businessesbut it is a regulated one.
Deutsche Bank AG ELEMENTS Dogs (DOD) 44% of the total returns from the market
for the lat 80 yearswas due to dividends. Why not start with the highest yielding
members of the Dow? Large capcompanies paying healthy secure dividends will be
less volatile and provide superior total return.
iShares iBoxx $ Investment Grad(LQD) U.S. Corporations have a lot of cash on hand
and balance sheetsare healthy enough to weather economic downturns. These bonds
are the most senior of claims of theassets of the business and will likely pay off
after dividends have been reduced or eliminated because ofan economic downturn.
In a deflationary environment interest rates could stay low providing some modest
capital appreciation.
JP Morgan Alerian ETN (AMJ) MLPs have provided stable and market leading returns
over the last several years.Risk are that most of this basket is tax advanced
infrastructure plays in the oil and gas businesses. Tax lawcould be a modest negative
but domestic energy is one of our few themes we are bullish on.
PowerShares Emerging Mkts Sovereign Debt (PCY) Emerging markets although traditionally
volatile appear at this junctures appear to have better balance sheets than developed
countries. The inability to get excessive credit turns out helping rather than hindering.
They also have above average yield.
iShares Barclays TIPS Bond (TIP) Our forecast for slow growth with rising inflation is
a perfect recipe for TreasuryInflation Protected bonds. Even though we predict little
or no growth in the economy, competition for scarce resources such as food, water, energy,
etc will drive up commodity costs as the world is increasingly globalized.