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Income Monitor: Q2 2018

Sep 24, 2018

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Rohan Reddy

The Global X research team is excited to introduce the Income Monitor. This report seeks to provide broad, macro-level insights into the income characteristics of various asset classes and strategies. This quarter’s report can be accessed here.

In this quarter’s report, we observe that there are some opportunities for value-conscious investors. Within the equity space, for example, MLPs, measured by the S&P MLP Index as of 6/30/18, look attractive with over a 4.3% yield spread to the yield on current 10-year Treasuries. In addition, MLPs yielded 1.04% more than their historical 5 year average as of 6/30/18. From a sector perspective, while Telecoms within the S&P 500 Index yielded 5.7%, the upcoming GICS sector changes may have investors re-evaluating the role of the Telecom space in their portfolios.

On the fixed income side, Emerging Market (EM) bonds were amongst the highest yielders, but come with risk. As demonstrated by the recent downturn in the emerging markets, currency depreciation can be a major source of volatility. High Yield (HY) bonds could be a potential alternative, but some analysts have expressed concerns about deteriorating quality of high yield bonds in the form of lighter covenants, possibly posing more risk than meets the eye in this segment. We believe Preferreds may be a more attractive option in the fixed income sleeve of a portfolio. Fixed Rate Preferreds offered yields of 5.62%, while potentially offering better credit quality characteristics.

As central banks around the world continue to engage in monetary tightening policies, we think that discriminating amongst the sources of income in a risk-adjusted manner will become an increasingly important factor within income portfolios.

Category: Reports

Topics: Dividends, Income Strategies

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Past performance is not a guarantee of future results. Indices are unmanaged and do not include the effect of fees, expenses or sales charges. One cannot invest directly in an index.

Carefully consider the funds’ investment objectives, risks, and charges and expenses. This and other information can be found in the fund’s full or summary prospectus, which may be obtained at globalxfunds.com. Please read the prospectus carefully before investing.

Global X Management Company LLC serves as an advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC. Global X Funds are not sponsored, endorsed, issued, sold or promoted by Solactive AG, FTSE, Standard & Poors, NASDAQ, Indxx, or MSCI nor do these companies make any representations regarding the advisability of investing in the Global X Funds. Neither SIDCO nor Global X is affiliated with Solactive AG, FTSE, Standard & Poors, NASDAQ, Indxx, or MSCI.

Investing involves risk, including possible loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Investments in securities of MLPs involve risk that differ from investments in common stock including risks related to limited control and limited rights to vote on matters affecting the MLP. MLP common units and other equity securities can be affected by macro-economic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards MLPs or the energy sector, changes in a particular issuer’s financial condition, or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs, generally measured in terms of distributable cash flow). Investments in the energy industry, entail significant risk and volatility.

High yielding stocks are often speculative, high-risk investments. These companies can be paying out more than they can supportand may reduce their dividends or stop paying dividends at any time, which could have a material adverse effect on the stock price of these companies.

Bonds and bond funds will decrease in value as interest rates rise. High yield bonds involve greater risks of default or downgrade and are more volatile than investment grade securities, due to the speculative nature of their investments. Real estate and REIT investments are subject to changes in economic conditions, credit risk and interest rate fluctuations. Preferred stock is subject to many of the risks associated with debt securities, including interest rate risk. In addition, preferred stock may not pay a dividend, an issuer may suspend payment of dividends on preferred stock at any time, andin certain situations an issuer may call or redeem its preferred stock or convert it to common stock.