It's the Season for Tuning Up Your Income Portfolio

It is time to start rebalancing your income portfolios. If you own leveraged loan funds, I'd look to lighten up exposure here. They have performed extremely well relative to other credit markets (Invesco Senior Loan ETF and SPDR Blackstone Senior Loan ETF among them). They have benefitted from their floating rate nature, though over half of them have rate floors, so they won't see income increase until after two to four hikes, depending on the floor. They do highlight that recent weakness is rates driven rather than credit driven; when we see credit problems, it hits leveraged loans. I have liked business development corporations, or BDCs (VanEck BDC Income ETF among ETFs), but I'm neutral here and possibly even taking profits. I am torn on closed-end funds linked to leveraged loans. I think they do well, but the ones I'm looking at barely trade at a discount to net asset value (NAV) and have rebounded since their late December and late January lows (both were nice buying opportunities). I am excited about the launch of Janus Henderson B-BBB CLO ET , an ETF focused on lower credit quality tranches in the collaterialized loan obligation (CLO) space. JAAA was launched some time ago and has grown to $526 million in asset under management (AUM). I don't mind that one, but there isn't a lot of spread in AAA CLOs. That is why JBBB is interesting, but it is very small. I like it, though for now I think there are better opportunities. On the bond side, I'm leaning heavily toward fallen angles, or BB-rated credits. This is my favorite trade now. This concept was very consensus at the start of the year as investors piled money into companies that had the potential to be upgraded to investment grade. That trade has done poorly and is why there is now such a good opportunity. Both iShares Fallen Angels USD Bond ETF and VanEck Fallen Angel High Yield Bond ETF are ETFs that give exposure to those types of companies. The ETFs have done poorly as yields have moved higher and credit spreads have widened - a double whammy. I'm a tiny bit hesitant because of the risk of higher yields but am starting to build positions here. High yield is interesting. For longer time horizon investors, I highly recommend mutual funds as the asset managers do tend to outperform in credit. On the ETF side, I actually prefer SPDR Bloomberg Barclays Short Term High Yield Bond ETF SJNK, which is shorter-dated high yield, rather than longer-dated high yield funds such as iShares iBoxx $ High Yield Corporate Bond ETF , iShares Broad USD High Yield Corporate Bond ETF and SPDR Bloomberg Barclays High Yield Bond ETF . It is rare for me to like the front end of high yield as it seems like a wimpy way to play high yield, but it has been beaten down so badly relative to overall high yield I think the risk/reward is heavily skewed to owning that for now. That is more of a trade than a longer- term investment horizon. On the investment grade side of things, I'm neutral. I just think the riskier credits are more interesting here. Would I sell something like iShares iBoxx $ Investment Grade Corporate Bond ETF and Vanguard Long-Term Corporate Bond Index Fund ETF (longer duration investment grade ETFs) to buy FALN or ANGL? Maybe, but hopefully we prepared well enough that we don't have to. I don't focus on municipal bonds that much, but I am digging into that area now. There have been some big outflows in mutual funds, so I am looking to buy munis; just trying to figure out the best way to implement that strategy. I also think my macro outlook leads me to want to buy emerging market stocks and bonds, but I need to analyze that more closely.

It's the Season for Tuning Up Your Income Portfolio

Here are ideas for where to put your money with a bunch of ETFs that offer options along the risk spectrum.

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