Looking For Income
Potential Benefits of Diversifying Income Portfolios
In today’s market, the search for yield and income is more challenging than ever. With treasuries, corporate bonds, and bank products yielding near historic lows, the tools investors used in the past to generate income may no longer be as effective. The question is, where can investors go to find income in today’s markets?
The History of Treasury Yields (January 1, 1940 - December 31, 2019)
Source: FRED Economic Data
Past performance is not a guarantee of future results. The referenced indices are shown for general market comparisons and are not meant to represent the Fund. Fund performance may be obtained by calling 1.855.LCFUNDS (1.855.523.8637).Monthly Income Comparisons Over Time
By analyzing the income generated by certain income-oriented strategies, we can see the effect over time that the current low-yielding market is having. The graph below illustrates the monthly income generated by a hypothetical $100,000 investment at various points in time.
Above graph illustrates the performance of hypothetical $100,000 investments made 1/1/1990, 1/1/2000, 1/1/2010, and 1/1/2020. Rates for above time periods: 3-month Libor – 8.35%, 6.04%, 0.25%, and 1.83% respectively, 10-year Treasury – 8.21%, 6.66%, 3.73%, and 1.77% respectively, and Corporate bonds (represented by Moody’s Seasoned Aaa Corporate Bond Yield) – 8.99%, 7.78%, 5.26%, and 2.95% respectively. and Corporate bonds (represented by Moody’s Seasoned Aaa Corporate Bond Yield©) – 9.62%, 6.24%, 5.05%, and 3.93% respectively. All scenarios assume distribution of income without reinvestment, and do not reflect the effect of any applicable sales charges or redemption fees. This graph is not intended to imply any future performance and represents past performance.
Looking Beyond Bonds
Given the relatively low interest rate environment, pass-through securities are becoming more attractive as investors focus on income-oriented securities. The current distribution rates1 in these sectors is significantly higher than those of traditional investments such as stocks and bonds, and we believe they can provide a dynamic complement to an income portfolio.
Income Sector Rates vs. Traditional Investments (12 Months as of 12/31/19)
1Distribution Rates are the combined distribution over the trailing twelve months divided by the period ending NAV. Net interest income distributions may include capital gains and returns of capital. Bonds are represented by the Barclays US Aggregate Total Return Bond Index . Stocks are represented by the S&P 500 Index. REITS are represented by the MSCI US REIT Index. MLPs are represented by the Alerian MLP Index. CEFs are represented by the S-Network Closed End Fund Index. Preferred stocks are represented by the ICE Core Fixed Rate Preferred Index. High Yields are represented by the ICE US High Yield Master II Index. Business Development Companies are represented by the S&P BDC Index. One cannot invest directly in an index.
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Diversification does not assure a profit nor protect against loss in a declining market.