A Diversified Path to Income Investing
Despite the markets undergoing dramatic shifts over the decades, the need for income has remained constant – whether its to generate cash flow for retirement or passive income or to increase the diversification and return profile of a portfolio.
Benefits of Income Investing
Consistent Income
Dividends and investment funds with fixed distributions generate a consistent income stream.
Stability
Incorporating income-oriented strategies contribute to a diversified portfolio and potentially lower volatility.
Growth Potential
Yield and reinvested distributions can help improve a portfolio’s total return profile.
With the current economic backdrop in 2023, there is now more emphasis on the yield component of income portfolios to mitigate the effects of rising interest rates and persistently high inflation. While there is an underlying belief that central banks will get inflation under control, the shifting environment for yield requires a different approach to achieving dividend growth and identifying sources of income that go beyond domestic markets.
AGF’s income suite offers differentiated, actively managed strategies that can provide investors with alternative sources of yield as well as global exposure to further broaden the opportunity to generate income and potentially increase capital growth.
Launched in August 2023, the Fund provides exposure to a diversified portfolio of dividend-paying U.S. equities combined with an actively managed option writing strategy and pays a fixed monthly distribution targeted at an annual rate of 6%.
Dividend Strategies with Option Overlays
One of the attractive characteristics of dividend stocks is the potential growth in them over time. Despite weaker performance of dividend payers in 2023, implementing options-based overlays as part of the investment process can help manage portfolio risk, generate premium yields, and enhance risk-adjusted returns.
Option overlays are investment strategies that use the value of the underlying portfolio holdings to collateralize the writing of options, typically through covered calls and cash-secured puts. As options are written and premiums are collected, the overall portfolio yield generated increases. While the main benefit of option overlays is additional income, an equally important benefit is that the premium generated can help offset portfolio losses should the underlying security decline in value due to market volatility.
Learn more about how options-based overlays work.
To demonstrate the benefits of this approach, AGF Canadian Dividend Income Fund1 has generated $40.0M (CAD) in premium income throughout 2020, 2021 and 2022 as a result of the investment team actively evaluating opportunities to sell covered call options on each holding of the Fund.
Yield Generation from Covered Calls
Source: AGF Investments Inc. and Bloomberg as of July 31, 2023. The premium generated the AGF Canadian Dividend Income Fund call writing was the actual amount of premium received into the fund within each calendar year period. Past performance is not indicative of future results. One cannot invest directly in an index. Full performance can be found on the Fund page link below.
Explore Our Dividend Strategies with Option Overlays:
AGF Canadian Dividend Income Fund1
Global Multi-Asset Strategies
While the relative advantages of dividend stocks still exist, the re-emergence of fixed income yield in 2023 has resulted in a more competitive income environment, with bonds now paying mid-single digit returns or better.
10-Year Treasury Yield Less S&P 500 Dividend Yield (Annually)
Source: AGF Investments Inc. and Bloomberg as of September 7, 2023. Periods December 31, 1973 to September 7, 2003. One cannot invest directly in an index. Past performance is not indicative of future results.
A multi-asset approach that includes dividends and other income-yielding instruments may be important going forward. A weighting towards dividend stocks, for instance, could potentially give investors the protection they need in the case inflation remains high, while a weighting towards bonds could be critical in the case of a recession.
While it can be challenging to find the right strategic allocation between asset classes to generate income, AGF offers access to global portfolios that invest in income-producing equity and fixed income securities and are actively managed and rebalanced aiming to take advantage of potential yield opportunities. Our solutions include varying asset mixes suitable for many risk profiles, including options for fixed distributions which are paid monthly.
The distribution is not guaranteed, may be adjusted from time to time at the discretion of the fund manager and may vary from payment to payment.
Why AGF for Income Solutions
High degree of collaboration between fundamental, quantitative, and global analyst teams to uncover yield opportunities across the investment universe.
AGF’s disciplined approach to investing aligns with investors seeking consistency within their income portfolios.
Global and North American income solutions available in a variety of series and vehicles, including standalone core funds and managed solutions.
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1 AGFiQ Canadian Dividend Income Fund was renamed AGF Canadian Dividend Income Fund on January 27th, 2023. Harmony Canadian Equity Pool merged into AGF Canadian Dividend Income Fund (formally AGFiQ Dividend Income Fund) ("the Fund") on June 28, 2019. AGF Canadian Growth Equity Fund merged into the Fund on May 21, 2019. The merger may have material effect on the performance of the fund.
2 AGFiQ North American Dividend Income Fund was renamed AGF North American Dividend Income Fund on January 27th, 2023.
3 AGF Strategic Income Fund was renamed the AGF Global Strategic Income Fund on June 30, 2023. AGF Tactical Income Fund merged into AGF Global Strategic Income Fund (formally AGF Strategic Income Fund) ("the Fund") on May 15, 2020. AGF Traditional Income Fund merged into the Fund on August 3, 2018 and AGF Conservative Asset Allocation Fund merged into the Fund on May 23, 2014. The merger may have material effect on the performance of the fund.
4 AGF Elements Yield Portfolio Fund was renamed AGF Global Yield Fund on April 26, 2023. AGF Income Focus Fund merged into AGF Global Yield Fund (formally AGF Elements Yield Portfolio) (“the Fund”) on May 15, 2020. Harmony Yield Portfolio merged into the Fund on June 28, 2019. AGF Monthly High Income Fund merged into the Fund on August 3, 2018. The merger may have material effect on the performance of the fund.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please go to the investor price and performance section of AGF.com to get current standard performance information for each fund.
This material is for informational and educational purposes only. It is not a recommendation of any specific investment product, strategy, or decision, and is not intended to suggest taking or refraining from any course of action. It is not intended to address the needs, circumstances, and objectives of any specific investor. This information is not meant as tax or legal advice. Investors should consult a financial advisor and/or tax professional before making investment, financial and/or tax-related decisions.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
The commentaries contained herein are provided as a general source of information based on information available as of August 31, 2023, and are not intended to be comprehensive investment advice applicable to the circumstances of the investor. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained herein.
Holdings are subject to change and do not represent all of the securities purchased, sold or recommended for the portfolio. It should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by AGF Investments.
The payment of distributions should not be confused with a fund’s performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, the original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund, are taxable to the investor in the year they are paid. The adjusted cost base will be reduced by the amount of any returns of capital. If the adjusted cost base falls below zero, the investor will have to pay capital gains tax on the amount below zero.
Series F securities can be purchased under the simplified prospectus only through a registered dealer who has obtained consent of AGF to offer Series F securities.
Publication Date: September 12, 2023