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Income Monitor: Q4 2019

Mar 3, 2020

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Rohan Reddy

The Global X Income Monitor for Q4 2019 can be viewed here. This report seeks to provide broad, macro-level insights into the income characteristics of various asset classes and strategies.

Q4 proved to be a positive period of equity market performance despite a lack of robust earnings data. Energy, Real Estate, & Utilities finished out the quarter with the highest dividend yields of the S&P 500 sectors. High Yield bonds rallied on strong funding conditions and an active deal pipeline. In spite of challenges out of certain Emerging Market (EM) nations like Lebanon, EM bonds were buoyed by the rally.

However, we’ve seen the beginning of 2020 evoke market moves reminiscent of many historical flights to safety. The unexpected developments with the Coronavirus are pushing yields down, strengthening the dollar, and inducing volatility in equities. The near and long term economic impact is uncertain and while the Fed and other central banks globally may be accommodative, it’s unclear whether lowering interest rates will be enough to reinvigorate the global economy amidst a public health crisis.

We think Covered Calls are an important tool to potentially generate income in today’s environment. Stock markets are unlikely to be able to replicate the returns from 2019, which raises questions about how income investors can monetize their positions. Writing calls to generate premiums allow investors to stay invested in the market while taking call premiums at the same time. On volatile indexes like the Nasdaq 100, the premiums can be higher than other commonly followed indexes.

Preferred stock is tax advantaged and can offer investors high yields. Other options like High Yield bonds and Emerging Market bonds may be higher yielding, but can introduce greater credit and currency risks.

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.

Neither Global X Funds nor its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.

Investing involves risk, including possible loss of principal. High yielding stocks are often speculative, high-risk investments. These companies can be paying out more than they can support and 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.

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, and in certain situations an issuer may call or redeem its preferred stock or convert it to common stock.

An option is a contract sold by one party to another that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed upon price within a certain period or on a specific date. A covered call option involves holding a long position in a particular asset, in this case U.S. common equities, and writing a call option on that same asset with the goal of realizing additional income from the option premium. By selling covered call options, the investor limits their opportunity to profit from an increase in the price of the underlying asset above the exercise price, but continue to bear the risk of a decline in the underlying asset.

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 globalxetfs.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.