Traditionally, a standard 60:40 stock and bond portfolio is commonly used with the aim to balance risk and return. However, in recent years, both asset classes have become more positively correlated, impacting bonds' role in providing diversification from stocks. Accordingly, investors may need to look into substitute strategies for diversification.
Watch our 1-minute video to explore a different way to diversify.
Equity Premium Income ETFs help diversification because:
- Equity Premium Income ETFs, which blend stocks with options overlays, have the potential to generate additional income correlated to stock volatility in the form of option premiums.
- The option overlays presents an alternative for diversifying portfolio risk1, in addition to traditional bond allocations.
- Equity Premium Income ETFs seek a lower volatility approach to equity investing, additional income, and reduced exposure to bond-related credit and duration risks.
In light of the current market uncertainty, incorporating additional income into a diversified equity income portfolio may potentially strengthen the resilience of overall equity investments, enabling investors to sustain a strategic allocation to equities.