Income in a Low Interest Rate World

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Asset Management  |  June 2, 2016  |  

The United States recently took part in a meeting of the G7, the international economic organization of industrialized countries, held in Japan. As an indicator of global interest rates, 4 of those 7 industrialized countries have a portion of their government debt carrying negative interest rates. In fact, 3 major global economies — Japan, Germany, and France – have about half or more of their government debt with negative rates.

Given this environment, what’s an investor to do who is looking to generate income from their investment portfolio?

Many investors have lost money chasing immediate yield in the recent period of global market unrest: junk bonds, Puerto Rico bonds, and emerging market debt have shown losses; and many high-yielding energy and mining securities have gone entirely bankrupt.

For investors of all types, we would emphasize a mix of assets that generate income with three factors being paramount: quality, diversification, and a growing stream of income. Venturi focuses on municipal bonds and a mix of assets that provide diversification and income that, most importantly, grows over time.

Municipal Bonds: Venturi holds an emphasis on quality and intermediate bonds. Many investment advisers have recommended taking credit risk to achieve higher income. This, to their dismay, has left many investors with losses from credit problems in places like Puerto Rico, Illinois/Chicago, and New Jersey. Contrastingly, we would would suggest avoiding the (merely advertised) high rates from low quality/problem states.

At Venturi, our Strategic Income Portfolio contains an objective to generate a growing stream of income and dividends from a diversified portfolio.  This strategy includes: Preferred stocks, REIT’s, MLP’s, corporate bonds, utilities, dividend stocks that have a solid growth rate for their dividends.    Overall, a mix of quality fixed income and growing dividends provides investors more stability and a growing stream of income over time.