SPDRs High Yield (JNK) Out – See What’s Now In

The MIP portfolio for over the past couple of years (well, a portfolio that was a precursor to the MIP) held the SPDRs High Yield ETF (JNK) for its over 5% yield. As fears of increasing rates continued to mount, I sold out of the position. My reason was I could swap out of that position and expand my positions into other existing positions, such as the Eaton Vance Buy-Write Opportunities Fund (ETV), which has an approx. 8% yield and is arguably less volatility than the S&P 500. So I felt the swap of the two was a better position to be in since I am not particularly of the opinion that the MIP has to have bond exposure to be successful, at least not high yield exposure at this time.

I also used the opportunities to expand the portfolio into some beaten down areas as well. As an example I started positions into the International Select Dividend ETF (IDV), the International Developed Real Estate ETF (IFGL), and lastly the Chinese Real Estate ETF (TAO). Main attraction here was to diversify away from U.S. real estate and increase exposure to international dividend payers. At their beaten down price, I believe I can start building a position at attractive pricing.

The majority of the proceeds from the sale of JNK were allocated to ETV throughout the past couple of months, so the new positions are relatively small at this time. As the MIP continues to generate cash, I will continue increase my holdings where the most opportunity is within the portfolio. The concern I do still have at this time however is that the main underperforming position in the MIP is the energy MLP exposure, which is still down about 1% this year within the portfolio. Very concious to try and not throw good money after bad, however I still view my position here very favorable, especially with the lack of infrastructure needed to transport all of the shale crude that is getting produced. I hold MLPA in this space.

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iShares 1 – 3 year Treasury Bond ETF (SHY)

Part of the mission of the MIP Portfolio is to perform in all markets by being diversified and having low correlations amongst the various holdings. Thanks to some feedback regarding the current portfolio from a helpful Facebooker, I am looking into adding the iShares 1 – 3 year Treasury Bond ETF (SHY) to the portfolio to maintain capital and generate income while interest rates are set to rise.

Now I have no idea how high they will rise, just that the general concensus is that interest rates will rise over time back to “normal” levels. Perhaps 3.5% – 4% on the 10 year is a normal range, or so I’ve heard from analysts on CNBC.

Since my portfolio is a yield portfolio, it will be sensitive to interest rate rises as higher yielding, safer investments (U.S. Treasuries) will garner higher demand. To protect against this I will look to start adding a position within SHY.

The wisdom I need from the crowd is to verify that SHY is the best way to protect an income focused portfolio against rising rates and what weighting this vehicle should receive. 10%, 15%, 20%+?

Please share your thoughts in the comment section. Refer here to see what is currently in the MIP Portfolio.


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