Income Monitor: Q4 2018

The Global X Income Monitor for this quarter can be viewed here. This report seeks to provide broad, macro-level insights into the income characteristics of various asset classes and strategies.

As volatility picked up in Q4, various asset classes within equities and fixed income were pressured, driving yields upwards. Markets were affected by the ongoing trade wars, the hawkish nature of the Federal Reserve, tax loss selling, the strengthening dollar, and weaker oil prices.

However, the tide appears to be turning in 2019 with strong earnings numbers in the US, a dovish pivot from the Fed, and optimism about a potential trade deal being reached. We believe this environment has created a more optimal environment for risk-on equities, albeit with the potential or additional volatility.

For dividend seekers, we think there should be a focus on quality despite the euphoria to start the year. Companies with stronger balance sheets may be able to weather choppy periods and manage dividend policies more closely than some of their counterparts who may not have the stability to support dividend payments during more difficult periods.

In equities, MLPs may warrant further investor attention as yields remain elevated and oil prices rise. The Energy sector has been beaten down by lower oil prices and a move away from riskier equities, but as inflationary pressures eventually kick in, we think the Energy sector could be poised for a rebound with higher oil prices.

On fixed income, we still like Preferreds as an alternative to other parts of the Fixed Income market like High Yield bonds. We believe the risk/return tradeoff in Preferreds presents a better value proposition over higher yielding bonds and floating rate instruments which may be susceptible to additional credit risk as rates rise.