Q: Conservative investor, given where markets are trading....and Trump. Seeking a 4+% yield with reasonable safety of principle in mind. In a 50/50 fund, what percentage of fixed income would you place in ZLC. Might a better approach be to just raise the total equity allocation instead by adding some US holdings, like ZWH for example? I realize you don't know all my details, just looking for a general comparison. Fantastic service, thanks.
5i Research Answer:
ZLC is long corporate bonds. As such, it has high leverage to corporate credit and interest rates. Of course, this leverage works both ways. One can assume this will be a more volatile fund so we might only use 20% (of a fixed income allocation). Conditions are likely OK for it right now, but 5-year annualized is actually negative 0.30% because of 2022 inflation scare. ZWH with its covered call exposure should certainly help hit the 4% hurdle. Yield is 6.08% and five year is 11.16%. The debt-equity allocation is always tricky. ZWH has risks, but so does ZLC. We would see ZWH as "conservative" as long as an investor has a decent timeframe to hold.