Income Monitor: Q2 2018

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.