It’s abundantly clear that the Federal Reserve has no choice but to keep interest rates low for an extended period of time, likely several years. That’s put added emphasis on selecting the right income-generating investments.
For advisors seeking quality income assets for client portfolios, the Siegel-WisdomTree Longevity and Siegel-WisdomTree Global Equity Model Portfolios are strategies to consider.
“The Siegel-WisdomTree Longevity Model Portfolio was designed to outperform a traditional 60/40 portfolio in a risk-conscious manner by structurally allocating more toward equities over fixed income and tilting toward factors such as dividend yield and low P/E ratios to seek higher income generation and outperformance potential,” according to WisdomTree. “The models are strategic in nature but also reflect tactical tilts based on market conditions. The strategy may include both WisdomTree and non-WisdomTree ETFs.”
Model Portfolios to Sidestep Low Rates
The Siegel-WisdomTree Global Equity Model Portfolio is aggressive, as its entirely allocated to equities across 13 ETFs spanning domestic, ex-US developed, and emerging markets.
“On the income front, we maintain our belief that interest rates will remain lower for longer. We have seen an increase in rates over the past several weeks as economic and COVID-19 vaccine news have hit the headlines, but that is relative—they are still very low, and credit spreads are back to historical averages,” said WisdomTree Model Portfolio Chief Investment Officer Scott Welch in a recent note.
With dividend growth expectations improving for 2021, quality model portfolios are sound alternatives to stretching for yield on lower quality fixed income assets.
Dividends are in demand as fixed income investors face a lower-for-longer interest rate environment. The Federal Reserve is expected to maintain its near-zero interest rate policy to help push inflation up, bolster the economy, and lower the unemployment rate. The Fed has already stated it is willing to let inflation run higher to offset years inflation fell below its 2% target.
“We continue to believe that advisors and end clients looking to generate current income out of their portfolios are better served by focusing on high-quality, yield-focused equities versus taking excessive risk in their bond portfolios,” adds Welch.
For more on how to implement model portfolios, visit our Model Portfolio Channel.