I personally think this preference is irrational, but I'm slowly coming to believe there is limited usefulness in trying to convince investors to change their innate preferences.
To that end, I became curious about what an optimally diversified yield-oriented ETF portfolio might look like. Starting with a list of Vanguard funds and supplementing it on the fixed income and small cap side, I used a method similar to my previous look at effective number of bets to narrow down the universe to an efficiently diversified portfolio.
I'll spare the gory details and tell you that what I ended up with is this:
- SPDR ICE BofAML Crossover Corp Bd ETF (CJNK)
- Vanguard High Dividend Yield ETF (VYM)
- Vanguard Intl Hi Div Yld Idx ETF (VYMI)
- SPDR SSGA US Small Cap Low Volatil ETF (SMLV)
- Vanguard Utilities ETF (VPU)
TTM yield is 3.38% versus 2.13% for Vanguard LifeStrategy Growth (VASGX).
One of the things I was curious about is whether a traditional high-yield bond fund would be either helpful or necessary, and for the most part I have decided that it is not. The unfortunately named "SPDR® ICE BofAML Crossover Corporate Bond ETF", or CJNK, appears by description to be similar the "falling angels" strategy of ANGL or FALN but it has a relatively low correlation with both and also with Vanguard High-Yield Corporate (VWEHX) for which there is no ETF.
I'd never heard of CJNK before though, and also don't think I fully appreciated the value (no pun intended) of VPU to an investor who wants more yield.
2018 has been a rough year so far for a couple of those funds (CJNK, VYM, and VYMI especially) but I expect over the long run their total return would be roughly in line with the broad market even though, as I said, I personally don't use yield as an input in constructing my own portfolios.