Easy Income Portfolio: Post-Election Update and Strategy Overview

The Easy Income Portfolio has proven to be a successful proof of concept within the Benzinga ecosystem over the past month, demonstrating resilience during a period of significant market events. Most notably, the unexpected and decisive victory of Donald Trump in the presidential election has created new implications for the fixed income market.

While dividend stock investors have generally fared well with stocks rising, those looking to deploy new capital face challenges as higher valuations have led to lower dividend yields. For bond investors, the journey has been particularly tumultuous. The MOVE index, essentially the VIX for the bond market, spiked above 130 – a level not seen in years – before retreating to its historical average of around 100. This volatility reflected the market’s shifting assessment of risk and uncertainty surrounding both presidential candidates’ potential inflationary policies.

Of particular concern are Trump’s proposed tariff policies. Historical precedents for tariffs have consistently demonstrated their problematic nature. The Smoot-Hawley Act during the Great Depression, which imposed tariffs on over 20,000 imported goods, led to retaliatory measures from trading partners and significantly worsened economic conditions. Similarly, the 1980s tariffs aimed at Japanese automobiles and electronics resulted in voluntary export restraints that drove up consumer prices and created additional inflationary pressures for the Volcker Fed.

More recently, the first Trump administration’s tariffs on Chinese goods, while necessary to address intellectual property issues, led to higher import prices and disrupted global supply chains – disruptions that were further exacerbated during the COVID-19 reopening. The bond market’s current selloff reflects concerns about potential inflationary pressures from new tariff policies.

However, the Easy Income Portfolio has shown remarkable resilience amid these challenges. While traditional fixed-income investments have struggled with rising rates, nearly all positions in the portfolio appreciated last week, with only one position showing a decline over the past month. This success stems from the portfolio’s carefully structured diversification across fifteen distinct securities.

The portfolio includes energy infrastructure investments in pipelines, shipping terminals, and processing centers, which generate fee-based income from oil and gas transportation. Global government bonds serve as both a hedge and income source, while community bank subordinated debt provides access to an attractive institutional-only asset class with strong safety profiles.

Risk transfer securities, primarily used in European markets and by major U.S. banks, offer another unique income stream with low correlation to traditional markets. The portfolio also capitalizes on closed-end fund discount arbitrage opportunities and SPAC arbitrage, both generating substantial monthly income. Double B bonds, representing the sweet spot between investment grade and high yield, provide attractive returns with managed risk.

Additional diversification comes from current-coupon mortgage-backed securities, residential agency bonds, jumbo mortgage origination, and commercial real estate loans spread across various sectors. Infrastructure investments round out the portfolio, positioning it well for future income opportunities.

This diverse collection of assets, carefully selected for their low correlation with both each other and traditional markets, creates a smooth path for generating high returns while maintaining reduced risk. The portfolio currently yields 9% when using balanced allocations across all funds. While not entirely a “set-it-and-forget-it” approach, changes will be made sparingly and only after careful consideration of maintaining the portfolio’s low-correlation characteristics.

The Easy Income Portfolio’s structure allows investors to either reinvest for growth or draw income for retirement needs. Its success in delivering consistent monthly income streams with lower volatility than traditional stock and bond portfolios demonstrates the effectiveness of this innovative approach to income investing. Barring dramatic changes in market conditions, the strategy will continue to focus on holding these carefully selected positions and collecting steady coupon payments.