Non-Traditional Income

Overview of Strategy

Non-Traditional Income strategies come in many different forms, but the common characteristic is that they generally invest in securities from non-traditional issuers. These strategies buy investments such as master limited partnerships (MLPs), floating rate notes, Preferred stocks or REITs as an example. The general goal of Non-Traditional Income strategies is to provide investors with higher current income and ultimately above-average long-term risk-adjusted returns.

Strategy Benefits

Consider investing in a Non-Traditional Income strategy if you’re looking for:

  • Potential for high current income – Because many non-traditional securities trade in relatively inefficient markets, investors can demand comparatively higher yields, boosting the income component of total return.
  • Enhanced diversification – With their generally low correlation to other asset classes, alternative income strategies may serve as a complementary investment to existing fixed income portfolios.

Non-Traditional Income Investment Characteristics

Potential for high current income
Seek returns uncorrelated to overall fixed income market
Seek above-average risk-adjusted returns
Diversification from duration risk

Key Strategy Considerations

  • Credit quality strength of underlying securities
  • Current interest rate environment and direction of rates
  • Macro-economic environment
  • Strategy that is divergent from broader bond universe