When Income is the Primary Focus

Weathering Market Turbulence Is Paramount

HAVING THE LASTING memory of the recently closed books for 2022, what a rough year it was for so many investors! But it doesn’t need to stop there. Is it time for a new income strategy?

Stocks and bonds were both down in 2022, which is rare. It’s only happened twice in the past 100 years. U.S. stocks were down 18.11%, and U.S. 10-year bonds were also down 16.97%.  Traditionally bonds would form the bulk of the income portion of the portfolio. If you’re not already doing it, it is time to carve out a 10% sleeve for income producing equities.

Most investors look for investments that have a demonstrated history of weathering market turbulence. Dividend strategies are popular portfolio building blocks. They form an elite segment of the large-cap and mid-cap equity markets that have shown a real resiliency in these turbulent markets.

We have also seen a pattern of resilience from quality companies known for dividend growth – high quality companies with long track records of consistently growing their business and paying dividends. These companies generally have had stable earnings, solid fundamentals, and strong histories of profit and growth. They have shown a significant ability to maintain their dividend growth in 2022 despite the pandemic and related economic crises.

To help your clients reach their income goals with dividends, one ETF that stands out is from $2 billion fund company Sound Income Strategies (ticker: SDEI). The Sound Equity Income ETF had 17 equal dividend payments in 2022 for $0.578 cents per share dividend and YTD share gain of 3.47% in 2022. See the chart below.

Per Morningstar, the Sound Equity Income ETF returned 34.58% in 2021. SDEI was ranked in the top five percentile per Morningstar – meaning that they outperformed 95% of the 1,207 active manages and indices in the large-cap value category.

Per Morningstar, the Sound Equity Income ETF returned 4.00% in 2022. SDEI was ranked in the top four percentile per Morningstar – meaning it outperformed 96% of the 1,229 active managers and indices in the large-cap value category.

The 2-year cumulative return for the Sound Equity Income ETF is 19.23%, versus 4% for the S&P 500 (almost 5X better).

THE APPEAL OF DIVIDENDS IS OFTEN OVERLOOKED
Make no mistake, dividend ETFs represent a potentially compelling investment opportunity that belongs in your portfolio. We believe a dividend investing approach that considers a company’s longterm financial health and valuations may help investors strengthen their core equity portfolio through different market cycles. The Sound Equity Income ETF is a dividend yield strategy that screens and weights companies based on dividend yield. The index’s process of considering financial health, growth and valuations helps address the potential risks of investing in high yielding companies by actively targeting large- and mid-cap companies from a broad range of industries, which are in the growth phase of their lifecycle. The number of active ETFs in the $10 trillion ETF industry has almost tripled since September 2019, enabling advisors to put active management strategies to work in their product offerings in a convenient, cost-effective way.

LARGE- AND MID-CAP STRENGTH WITH A TWIST.
More established than small-caps but with greater scope for growth than most large-caps, The Sound Equity Income ETF targets the often-overlooked large and midcap stocks that sit at the attractive intersection of stronger financial stability, and a potentially long runway of growth ahead.

HOW CAN THE SOUND EQUITY INCOME ETF FIT WITHIN A PORTFOLIO?
First and foremost, the Sound Equity Income ETF has offered an attractive yield relative to the broad U.S. equity market. As investors have sought income away from traditional duration-sensitive fixed income assets, the Sound Equity Income ETF offers income investors a yield alternative. These features may provide the confidence required to stay invested in the market during difficult times – reaping the potential rewards of investing over the long term. As you revisit your portfolio for the rest of 2023, you could make a case to place the Sound Equity Income ETF in either a U.S. large cap equity, U.S. mid-cap equity, or a U.S. dividend equity income sleeve.

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