Key Points
- Economic rebound pushing higher yields.
- Adding four new sources of income.
- Revising benchmark to better match objective.
The U.S. economy is poised for a sharp rebound due to the widespread distribution of the Covid-19 vaccine and strong fiscal support. President Biden signed a $1.9T stimulus package which includes direct payments, a boost to unemployment benefits, child tax credits, and aid to state and local governments. The expectation of stronger growth has pushed yields higher. The prices of bonds move in the opposite direction of yields, so higher yields mean lower prices for bond investors. A rebounding economy is generally good news for equity investors, but it presents a challenge for bond investors due to higher yields.
Due to the expected rebound, we made some changes to the Income SMA strategy. While focused on diversified sources of yield, we added four new themes to the strategy:
- Dividend-focused equities diversified across higher yields and dividend growth.
- An option writing strategy utilizing tactical covered call options to boost income.
- Tactical high yield manager with a strong track record capturing the uptrend while protecting against downturns.
- Floating rate bank loans, which offer strong relative value and protection against higher rates.
To fund these allocations, we realized profits in an investment-grade bond holding and reduced other holdings proportionally.
We also took this opportunity to review the benchmark for the strategy. We have changed the benchmark to the Morningstar Conservative Target Risk Index. We believe this better represents the flexibility, objective, and risk level of the strategy.
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Disclosure: The information provided above applies to the following investment product: TPFG Income SMA, which is a mutual fund managed by Pacific Financial Group, LLC. (PFG), a registered investment adviser; and several Separately Managed Accounts managed by PFG’s affiliate, The Pacific Financial Group, Inc. (TPFG), a registered investment adviser. The information provided reflects the opinion of PFG and TPFG, as of the date stated, and such opinions may change without notice. Neither PFG nor TPFG makes any warranties as to the accuracy of the information or any representations made or implied. The information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service. The information is for informational purposes only and should not be relied on or deemed the provision of tax, legal, accounting or investment advice. Mutual funds are sold by Prospectus only. Investors should read the Prospectus carefully before investing. All investments contain risks to include the total loss of invested principal. Past performance is not a guarantee of future results. Diversification does not protect against the risk of loss.