Q – I have been an Income Investor subscriber for about 20 years and have found the newsletter quite valuable over all that time! I am a retired investor with a substantial RRIF portfolio. Due to my advancing age and my outlook for the next couple of years of geopolitical uncertainty, I am de-risking my portfolio by tilting the equity-to-fixed income ratio even more in favour of fixed-income holdings.
I currently have holdings in the following (with current yields): XBB (3.21%), XTLT (3.57%), and ZPL (3.83%). My research has led to the following other possible candidates: XLB (3.73%), ZMMK (4.81%), and CMR (6.57%). I have two questions for you:
1. How does CMR manage to generate such a “huge” yield, and is it safe?
2. Which of the above six alternatives (or others you could suggest) would you suggest to further add to my fixed income holdings? – Larry H.
A – It appears you are using a variation of the “barbell” approach. This strategy postulates that the best way to strike a balance between reward and risk is to invest in the two extremes of high-risk and low-risk assets while avoiding middle-of-the-road choices.
All your investments, both current and potential, are either short-term or long-term positions with one exception – XBB, which is the iShares Universe Bond Fund. It doesn’t fit if the barbell is your objective.
All the ETFs that you mention are viable choices. CMR is the iShares Premium Money Market ETF, which invests in short-term, high-quality fixed-income securities. It’s about as safe an ETF as you’ll find and hasn’t lost money over a calendar year since at least 2019, although it only broke even in 2021. It’s ahead 4.49% year to date, but that’s an anomaly created by the inverted yield curve earlier in the year. Going forward, expect a return that’s closer to the fund’s 10-year average of 1.56%. My suggestion is that you decide on what strategy you will use. If it’s the barbell, then XBB should be sold and the short- and long-term holdings should be evenly balanced. If the goal is a middle-of-the-road strategy, XBB should be the core position, and the long and short positions should be adjusted depending on your risk tolerance. – G.P.