Want to build a passive income portfolio? For investors seeking compelling income opportunities, a high yield portfolio like Syfe’s Global Income portfolio may be the answer.
Global Income targets a gross dividend yield of 4% to 5% per year. It aims to provide consistent and relatively high yield by investing across diversified income-generating asset classes. Following our April 2022 portfolio re-optimization, we have added preferred stock and REITs to our income strategy for better yield.
Here’s a closer look at the underlying holdings that form the Global Income portfolio.
US preferred shares: PFFD
Preferred stock is a type of stock that pays regular, scheduled dividends, but does not come with voting rights. Preferred stock offers attractive income as well as the potential for the shares to rise in value over time.
The Global Income portfolio now holds an allocation to Global X US Preferred ETF (PFFD), which invests in a broad basket of US preferred stock, an asset class that has historically offered high dividend yield potential.
Many of PFFD’s holdings are in Financials. As interest rates rise, banks are poised to do well.
PFFD makes monthly dividend payouts and has a 12-month dividend yield of 5.7% as of 31 March 2022.
Global REITs: VNQI & VNQ
REITs must distribute at least 90% of their taxable income to shareholders annually in the form of dividends. For this reason, REITs have historically offered high income potential and capital appreciation opportunities.
Syfe’s Global Income portfolio includes Vanguard Real Estate ETF (VNQ) and Vanguard Global ex-US Real Estate ETF (VNQI) to provide diversified REIT exposure across countries and sectors. VNQ invests in US REITs while VNQI invests in REITs from more than 30 countries. Both ETFs hold REITs spanning various sectors such as retail, residential, office, industrial, healthcare, hospitality and more.
With inflation trending higher, REITs can act as an inflation hedge as well. As prices rise, so do rents. This increases the amount of rental income REITs can earn, which are then passed on to investors in the form of higher dividends.
VNQ distributes dividends quarterly while VNQI follows an annual dividend distribution schedule. As of 31 March 2022, VNQ has a 12-month dividend yield of 2.8% while VNQI has a 12-month dividend yield of 6.9%.
Emerging market government bonds: EMB
The iShares JP Morgan USD Emerging Markets Bond ETF (EMB) is a popular ETF that provides diversified exposure to emerging market government and quasi-government bonds.
EMB’s underlying holdings are investment grade and high yield bonds such as sovereign bonds from Mexico, Indonesia, Saudi Arabia, Turkey, Philippines, and Brazil. These countries represent some of EMB’s largest geographical exposures.
EMB pays dividends monthly. As of 31 March 2022, EMB has a 12-month dividend yield of 4.5%.
Emerging market corporate bonds: CEMB
To complement the exposure to emerging market government bonds, BlackRock launched the iShares J.P. Morgan EM Corporate Bond ETF (CEMB) to offer investors diversified access to emerging market corporate bonds.
The fund holds investment grade and high yield corporate bonds across various sectors such as industrials, utilities and financial companies, and quasi-government bonds. There are 1,014 holdings in all, so the vast majority of the allocation weightings for each bond is less than 1%.
Top holdings include bonds issued by Ecopetrol, one of the largest petroleum companies globally, Teva Pharmaceutical, which specialises in high quality generic drugs, and TSMC Global, the largest chip manufacturer in the world. The top three emerging market countries within the portfolio are China, Brazil and Mexico.
CEMB pays dividends on a monthly basis and has a 12-month dividend yield of 3.9%, as of 31 March 2022. It also represents the largest holding (26.7%) within the Syfe Select Global Income portfolio.
Short duration high yield corporate bonds: SHYG
Aptly named, the iShares 0-5 Year High Yield Corporate Bond ETF (SHYG) offers diversified exposure to short-term US high yield corporate bonds. It is typically used to maintain exposure to corporate bonds with potentially less interest rate risk, given the short weighted average maturity of 2 years for the fund.
SHYG holds 685 corporate bond holdings that are diversified across sectors such as consumer cyclical, energy, communications, and finance companies. Top holdings include bonds issued by Ford, Sprint, and Teva Pharmaceutical.
Dividends are distributed on a monthly basis. As of 31 March 2022, the 12-month dividend yield is 5.0%.
Fallen angels: FALN
In the investing world, a ‘fallen angel’ refers to a bond that has been downgraded from investment grade to high yield. Historically, there’s a price anomaly that can arise when this downgrade happens, and fallen angel bonds offer an opportunity to take advantage of this for additional potential returns.
The iShares Fallen Angels USD Bond ETF (FALN) holds 300 of such fallen angel bonds. Bond issues from Apache Corporation, Sprint Capital, Occidental Petroleumprint, and Royal Caribbean round out FALN’s top holdings. The bond issuers come from a range of sectors including energy, consumer cyclical, communications and technology to provide diversified exposure.
Dividends are distributed on a monthly basis. As of 31 March 2022, the 12-month dividend yield is 3.6%.
Invest for income
If you’re looking for a high yield bond portfolio, the Syfe Select Global Income portfolio may be right for you. It aims to help investors achieve better income generation through diversified income-generating holdings, and targets attractive yields of 4% to 5% per annum on average.
You can get started with no minimum investment, no lock-in period and no brokerage fees. As an added advantage, Syfe will manage your portfolio with free dividend reinvestment and automatic rebalancing, for fees as low as 0.35% per year.