Articles about Low Beta Investing

The Ultimate Income Portfolio: 7.1% Yield with Low Risk, 2014
In July of 2010, I introduced a portfolio-construction strategy called the Ultimate Income Portfolio (UIP). I have updated that strategy annually, revising the holdings and reviewing the previous year’s results. My goal is to provide the maximum available yield while diversifying to reduce risk. I set a target risk, which is within the range that most individual investors seek. I also sell covered call options against portfolio holdings to increase income.

In this article, I analyze the performance of last year’s UIP and generate the UIP for 2014-15. The result is a portfolio that yields 7.1% with a risk level equivalent to a 70/30 stock/bond index fund. I also explore some of the lessons learned from four years of tracking and revising the portfolios.
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Income Investing Library
As well as the articles listed below, the articles in our Income Investing Library could be considered appropriate for the Low Beta Library (as Income investing favors many investments that display low beta.) A couple of these articles are included below. If you would like more, here's the link to our Income Investing Library.
How to Construct a Low-Cost Conservative Portfolio, 2013
One of the greatest challenges for investors today is constructing low-risk portfolios that provide the best returns using low-cost funds or exchange-traded funds (ETFs). Doing so requires advisors to define risk as the potential for retirees to fail to achieve their financial goals, instead of as volatility, as it is traditionally measured. I will show how to construct a low-cost portfolio that minimizes this definition of risk while generating a reasonable real return.

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Is Gluskin's David Rosenberg Right about Utilities?, 2012
They’re not the sexiest property on the Monopoly board, but in today’s market, there’s plenty of evidence mounting that utilities are a great source of income. Gluskin Sheff’s David Rosenberg made the case for utilities in his September 6 commentary. Taking a contrarian view, Rosenberg acknowledged that utilities are universally disliked by Wall Street analysts and have performed poorly relative to other sectors this year. But utilities offer a 4.2% yield – nearly twice that of the market....they deserve a substantial...
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The Ultimate Income Strategy: Higher Yield and Lower Volatility, 2012
Investors, especially those in the de-accumulation phase of their retirement, count on high income and low volatility. Achieving the best possible tradeoff between yield and risk is a major challenge for advisors. Over the last two years, I’ve shown how to construct a low-risk portfolio – the ultimate income portfolio (UIP) – that yields over 9.0%. Let’s look back at how those portfolios performed and the components of this year’s UIP.
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High Yield and Low Risk: Finding the Best Closed-End Funds, 2012

Yield-starved investors have ventured into exotic – and often risky – assets, including hedge funds, non-traded REITs and private placements. But an asset class that has been around since 1893 offers a compelling combination of low risk and high income. A carefully selected portfolio of closed-end funds (CEFs) will yield 8% with less volatility than the S&P 500.

See full article at Advisor Perspectives...

Why High-Yield Bonds Make Sense Today, 2011

None other than Gluskin Sheff’s Dave Rosenberg, the widely followed analyst who was been consistently bearish in the current market cycle, said last week that high-yield (HY) bonds are “a good place to be right now.” Recent price declines have made them attractive in the short term, and their risk-adjusted returns make them attractive to longer-term strategic investors.

See full article at Advisor Perspectives...

Why Low Beta Stocks Are Worth a Look, 2011
The recent volatility in the stock market has many investors trying to figure out how to maintain some exposure to equities, while limiting their exposure to the big ups and downs of the major equity indexes.

One alternative is to manage a portfolio’s beta, a measure of how a portfolio tends to respond to movements in a broad index (most commonly the S&P 500 Index). Stocks with values of beta less than 100% (1.0) tend to react less to changes in the broader market. (For example, utility stocks typically have betas less than 1.0, because their earnings are largely independent of broader market volatility.) Low beta stocks tend to have lower volatility than the market as a whole; however, the terms “low-beta” and “low-volatility” are not entirely synonymous.
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Lessons from Yale’s Endowment Model and the Financial Crisis, 2010
The Yale endowment's performance during the financial crisis was worse than what would be mathematically expected, but not significantly enough to question the endowment model's tenets. Moreover, Yale's performance and philosophy suggest two very important lessons for advisors and investors- to diversify beyond equities and fixed income, and that some illiquid asset classes can be an important source of alpha.
See full article at Advisor Perspectives...

Misconceptions about Risk and Return Uncovered, 2010
Our beliefs about risk and return determine how we construct portfolios and manage risk. Research over the last decade suggests that a number of the ideas on which many investors and advisors rely lead to portfolios that are too highly exposed to market risk. Recent years have vividly demonstrated the perils of such portfolios.

In this article, I will review a number of ideas that determine how we select assets and how we determine what to expect from those assets. I start with the ubiquitous CAPM model and work forward through more recent work. I will then demonstrate how flawed assumptions about available opportunities can handicap portfolio performance, and I will show that rejecting the assumption that investors are not compensated for idiosyncratic risk can be an important way to enhance returns.
See full article at Advisor Perspectives...
The Ultimate Income Portfolio, 2010
Income investors seek a substantial, long-term income stream from their portfolios, and they don’t want to rely on capital appreciation or to deplete principal. Also seeking income may be investors who do not want to rely on economic growth to fuel returns on their investments.

Conventional approaches to constructing income-oriented portfolios use either bonds or high-yield stocks. In this article, we will explore a compelling alternative to that approach: a carefully selected model high-yield portfolio consisting primarily of low-beta, high-dividend stocks, against which the investor sells call options.
See full article at Advisor Perspectives...
A Better Way to Invest in Gold, 2010
When I last wrote about gold one year ago, I said that gold was sufficiently risky that an investor’s best strategy would be to purchase at-the-money call options on GLD (the gold ETF) rather than to buy GLD directly.

At-the-money GLD options have appreciated by 69% since.

I did not go as far as to advocate a pure-option strategy – that would have been a massive, bullish bet on gold; instead, my recommendation for exposure to gold was a combination of a bond ETF and GLD call options.
See full article at Advisor Perspectives...
Strategic and Tactical Perspectives on Gold, 2009
Gold is getting a lot of attention from investors, in large part because it has outperformed all major asset classes over the past several years. There are also other, more fundamental reasons why investors are looking towards gold. The looming specter of inflation and a weaker dollar tends to motivate interest in real assets. The long-term perspective on precious metals typically focuses on the low correlation between gold and other asset classes. Indeed, when investors are selling off equities, they often pile into precious metals, as we have seen in recent years.
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Dividend Aristocrats Will Continue to Outperform, 2009
There are some solid arguments that dividends will represent the bulk of returns from stocks for a number of years into the future. Regardless of whether this is correct or not, there is a broad consensus that capital appreciation will be sufficiently low that we will see, on average, 8% annual returns per year from domestic equities. This is generally in line with estimates from a range of sources, albeit on the conservative end. These factors suggest that even investors who are not specifically focusing on income may do well to spend some time looking closely at dividend yields. That said, the dismal performance of dividend focused index funds like DVY over the last couple of years makes it clear that it is unwise to blindly invest on the basis of yield.
See full article at Seeking Alpha...
Additional Dimensions of Value Investing, 2009
‘Value investing’ seems like a fairly straightforward concept, but many investors have realized that there are nuances to value investing—especially in light of large losses in some value-oriented strategies in 2008-2009. The idea seems simple: buy stocks that are relatively low-priced, as measured by dividend yield, price-to-earnings ratio, or price-to-book. There are studies going back decades that have noted that buying stocks at low P/E ratios tends to yield have average total returns than buying stocks at higher P/E ratios (see Malkiel’s A Random Walk Down Wall Street, for example). Fama and French identify ‘value’ as a statistically robust predictor of higher returns. Rob Arnott has further popularized this idea with ‘fundamental indexing.’
See full article at Seeking Alpha...
Are REITs Now Undervalued?, 2009
The last couple of years have been rough for real estate, but there was a time not too long ago when it seemed that this was a ‘special’ asset class, with real estate investment trusts (REITs) providing valuable diversification benefits and consistently high returns. Do today’s low valuations represent an opportunity to buy? Can investors expect a return to low correlations for REITs with the major equity market indexes?
See full article at Advisor Perspectives...

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