3 Strategic ETFs For Retired Investors [iShares S&P US Pref Stock Idx Fnd (ETF), Cambria ETF Trust]

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December 24, 2014 11:54am NYSE:PFF NYSE:SYLD

retirementDavid Fabian: Investors managing their money through retirement often have different needs than during their growth and accumulation years. Often times they are more focused on income and capital preservation rather


than taking the risk of seeing their hard earned capital evaporate. With that goal in mind, building out a diversified portfolio using both core and strategic positions can enhance your dividend yield and provide a strong base for steady returns.

Strategic or tactical holdings can be an excellent way to focus a portion of your portfolio towards an area of the market that you feel offers a unique value proposition. By incorporating these themes in an ETF, you are able to access a low-cost basket of securities with transparency and daily liquidity.

For the equity sleeve of a retirement portfolio, an excellent strategic opportunity is through the Cambria Shareholder Yield ETF (SYLD). This actively managed basket of 100 domestic stocks is selected according to companies that are paying a dividend, buying back shares, or paying down debt on their balance sheets.

The end result is a unique basket of high quality stocks that don’t necessarily overlap a traditional high dividend yield or dividend growth-oriented index. The portfolio is primarily centered around large-cap stocks, with approximately 25% geared towards small and mid-cap names. Financials, technology, and consumer discretionary companies make up the top three sectors in SYLD.

Another unique income investment is the iShares Morningstar Multi-Asset Income ETF (IYLD). This ETF uses a “fund of funds” approach to select various stock, bond, and alternative asset classes in well-known dividend paying sectors.

IYLD should primarily be used as a strategic bet on credit as the underlying components are weighted more towards high yield corporate bonds, mortgage REITs, and dividend paying stocks. There is also some modest exposure to treasury and investment grade bonds to help balance volatility as well.

Because of the credit heavy exposure, the 12-month trailing yield on this ETF is currently at 5.50% and income is paid monthly to shareholders. A sustained low interest rate environment and continued strength in equities will provide a nice environment for IYLD to prosper.

Lastly, the iShares U.S. Preferred Stock ETF (PFF) is an area of the market that is worth noting for a retirement portfolio. I classify PFF in the “alternative income” category because of its equity and debt characteristics. Preferred stocks pay a fixed dividend, but place you higher on the capital structure than common stock holders.

Alternative asset classes often have above-average yields and non-correlated returns that make for excellent strategic positions to balance out traditional stock and fixed-income holdings. PFF has a current 30-day SEC yield of 5.60% and has shown itself to be a worthy holding for income and capital appreciation as interest rates have continued to decline.

The Bottom Line

All three of these ETFs offer the opportunity to shift a portion of your assets towards a unique area of the income-generating market. The key to implementing them successfully in your retirement portfolio is to pair them with traditional dividend paying stock or fixed-income exposure. This will help minimize volatility and provide greater overall balance to your investment mix.

This article is brought to you courtesy of David Fabian from FMD Capital Management.


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