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    MKT Perspectives Issue 4

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    barrettdaniel
    The document provides investment strategies for generating income in a low interest rate environment. It recommends that investors look across capital structures and towards unconventional sources of yield, redeploy cash from low-yielding money markets and bonds, focus on stocks with sustainable dividend growth rather than high yields, and increase exposure to high-yield corporate bonds, MLPs, and REITs to boost portfolio income. Understanding the tax implications of these strategies is also important.

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    MKT Perspectives Issue 4

    Uploaded by

    barrettdaniel
    13 views1 page
    The document provides investment strategies for generating income in a low interest rate environment. It recommends that investors look across capital structures and towards unconventional sources of yield, redeploy cash from low-yielding money markets and bonds, focus on stocks with sustainable dividend growth rather than high yields, and increase exposure to high-yield corporate bonds, MLPs, and REITs to boost portfolio income. Understanding the tax implications of these strategies is also important.

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    Mkt Perspectives Issue 4

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    The document provides investment strategies for generating income in a low interest rate environment. It recommends that investors look across capital structures and towards unconventional sources of yield, redeploy cash from low-yielding money markets and bonds, focus on stocks with sustainable dividend growth rather than high yields, and increase exposure to high-yield corporate bonds, MLPs, and REITs to boost portfolio income. Understanding the tax implications of these strategies is also important.

    Copyright:

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    Download as PDF, TXT or read online from Scribd
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    Download as pdf or txt
    13 views1 page

    MKT Perspectives Issue 4

    Uploaded by

    barrettdaniel
    The document provides investment strategies for generating income in a low interest rate environment. It recommends that investors look across capital structures and towards unconventional sources of yield, redeploy cash from low-yielding money markets and bonds, focus on stocks with sustainable dividend growth rather than high yields, and increase exposure to high-yield corporate bonds, MLPs, and REITs to boost portfolio income. Understanding the tax implications of these strategies is also important.

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    MarketPerspectives Issue4

    GenerateIncome Inanenvironmentdictatedbysluggisheconomic growthandlowinterestrates,anyobjectiveto generateincomefromyourinvestmentsiseasier saidthandone.Ortoputitanotherway,income generationremainsincreasinglypursuedandyet difficulttoachieve.UBSstrategistsrecommend investorslookacrossthecapitalstructureand towardsmoreunconventionalsourcesofyieldto generateincome.Weprovidemoredetailonthis strategyandwouldbehappytodiscusshowyoucan makeadjustmentstoyourownportfoliotogenerate moreincome. ReduceCash Thepositivefinishtofinancialmarketsin2011has carriedoverintothisyear.Animprovedtonetothe Europeansovereigncrisisandstrongerthanforecast economicdataaccountforthisperformance.Yet marketsdonotfollowstraightlinesequityrisk premiumsarestillhistoricallyelevatedsuggesting stocksremainparticularlyexposedtothedownside onanynegativemacronews.Asaresult,wedonot anticipatecapitalappreciationtobetheprimary driverofreturnsinportfolios.Incomegeneration matters.Butinvestorscannotgetthatfromnear zeroyieldsonmoneymarketsandshorttermbonds. Acontinuedredeploymentofcashisnecessary, particularlyasourstrategistsexpectpolicyrates& yieldstoremainlowastheeconomydeleverages. DividendGrowthoverPureDividendYield UBScreatedtheDividendRulerstrategytofocus investorsonastockportfoliothatemphasized sustainabledividendgrowth.Simplytargetinghigh dividendyieldingsectorsoftheS&P500canlead investorstopurchasestocksthatareexpensive.We estimatetwohighdividendsectorstradeathefty premiumstothemarkettheTelecomsectorstands ata140%relativeP/EmultipletotheS&Pandthe Utilitysectoratapprox.125%.Meanwhile,our DividendRulerstockspresentlygarneravery modestpremiumtotheS&P500earningsmultiple. Weexpectdividendgrowthtofarexceedearnings growththisyearafterlaggingsince2008.Andour estimatefor10%dividendgrowthleavescompanies

    DanBarrett 9733604247 daniel.barrett@ubs.com

    ampleroomtoboostdividendsfurtheraspayout ratiosareonlyslightlyabovetheiralltimelow reachedin2010. Increasecreditrisktoaddyield Corporatebondscontinuetobenefitfromstrong balancesheets.Thecombinationof'justenough growthwithlimitedinflation'ispositiveforcredit markets.Atthisstage,ourcreditstrategistsbelieve itismoreprudenttoaddyieldbymovingintohigh yieldcorporatebonds.Forindividuals,liquidity concernscanbealleviatedbycorporatebondfunds wherecurrentincomeisaprimaryobjective.Itis alsonotablethatHighYieldbondETFs(ie.HYG,JNK) areexpandingsignificantlyasinstitutionalinvestors seekliquidalternativestoTreasuries.Weexpect Fedpolicytocontinuetodriveasearchfor additionalyieldthatbenefitsthebackdropforthe creditmarket. MLPsAndREITs Thesetwoclassesofsecuritiesrepresentastrong, incomeorientedassetclass.REITs(propertysector) andMLPs(energysector)passalongthebulkoftheir incometoinvestorsintheformofdividendsthe broadestREITindexdividendyieldisnearly2xthe 10yrTreasuryyield. Thepropertysectorcontinuestoimproveas occupancyratesclimbandsignsofprogress emanatefromtheresidentialsector.Thefocuson oil&gasproductionfromshaleresourcesfigures prominentlyingovernmentandindustrydata showingtheUSisincreasinglymeetingitsdomestic energydemands.Inadditiontotechnicalsupport frominvestorsseekingyield,thereisunderlying, fundamentalsupportforthesesectors. Aswithanyinvestment,understandingtax considerationsrelatedtotheseincomegenerating securitiesandstrategiesisrecommended.Higher yieldingsecuritiesandstrategiesalsoneedtobe evaluatedonacasebycasebasis.Weareprepared toanalyzealloftheseissueswithinthecontextof yourfinancialgoalsandrisktolerance.

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