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Strategic income funds generally have an objective of generating more income than high-quality, intermediate-term U.S. debt securities. Further, capital appreciation is a secondary objective as long as it’s consistent with producing income. Many strategic income funds work to build a global portfolio of income-producing securities from both U.S. and foreign issuers, including emerging market issuers.
Managers of these types of funds try to select what they think are the most attractive investments across a wide range of fixed income sectors such as corporate debt, government and sovereign debt, mortgage-backed securities, and other asset-backed securities of varying maturities.
Some research has shown that the numerous sectors of the bond market can behave differently when different economic conditions arise. One example is how periods of economic expansion result in high yield and convertible bonds performing well due to rising corporate profits that improve their credit profiles.
This works both ways, however. These bonds also will perform very poorly during periods of economic contraction because of their credit profiles deteriorating. During recessionary periods, investment grade bonds often wind up being better performers due to their responsiveness when it comes to declining interest rates.
Bond funds that invest in government and municipal bonds carry little to zero default risk, making them an ideal place for beginning investors during economic uncertainty. As with most investments, the low risk of these funds means they usually pay lower yields compared with corporate bond funds.
If you like how bonds work but want slightly higher returns, corporate bonds are another option. These come with the additional risk that the company could default on its principal or interest payments, which is why they pay higher interest rates. Corporate bond funds are classified as either investment-grade bond funds or below-investment-grade funds more commonly called junk bond funds.
When you want the lowest risk possible, investing in money market income funds is often a safe bet. These funds typically invest in certificates of deposit (CDs), commercial paper, and short-term Treasury bills. All of these will provide a very low level of risk that virtually guarantees returns, even though they’re often very modest.
These types of funds provide a safe and simple way for beginning investors to dip their toes into investing because the main objective of these funds is safety and security. That said, they also have low share prices and relatively low yields, making them attractive for allocating more capital as retirement age approaches.
Numerous types of publicly-traded companies pay dividends to their stock investors, which provides more security, steady income, and an option for reinvesting for even greater returns overall. Funds that are focused on stocks that pay dividends are called equity income funds. These funds are a popular option for retirement-age beginner investors who need more predictable monthly income from their portfolios than growth.
A leading way income funds can provide stable passive income is to hold real estate. These types of income funds provide both high security and high yields by balancing risk across their portfolios. Let’s cover the numerous types of real estate properties these funds may own and how each impacts risk.
One attractive type of real estate investing that funds use to reduce their risk is buying property with numerous tenants rather than just one. Multifamily properties are one example of this, being composed of multiple buildings and hundreds of units. These properties are known for providing consistent returns and stability.
Retail storefront space can provide premium, steady returns for the long-term. The best real estate fund managers will work to acquire properties that can provide space for high-growth, stable industries such as healthcare, grocery, and specialty stores that provide delivery services. These properties are great for investors who want secure passive income regardless of market fluctuations.
The manufacturing and warehouse space market has seen incredible growth resulting from e-commerce order volume expansion, driving remarkable returns for these types of real estate investments. There have been shortages for this type of space for years, and there’s no sign of that stopping anytime soon.
Office buildings and office complexes provide an excellent source of long-term leasing income. Assets that are thoroughly vetted by managers within markets that feature a net positive migration rate can provide consistently high-quality returns for real estate income funds.
Residential rental communities that are made up of single-family rental homes for rent are often funded by real estate funds. These are one of the more risky property types due to the lower tenant per building ratio.
Income funds that seek to maximize returns but at the expense of higher risk will buy unimproved land and turn it into a modern new real estate concept. These properties are the riskiest assets for income funds because of how complex they are to analyze. A wide range of issues could arise at any step of the process of construction. All it takes is one zoning issue to immediately halt a project.
The good news is, most development funds are only open to expert-level investors with a strong knowledge of how the entire development process works from end to end, along with how to best deal with local government regulations.
Investors who are focused on diversification to minimize their risks and maximize their earning potential, Saint Investment has a real estate fund that provides the best of each. Saint Investment Group is an expert team of real estate investors that analyze every asset before it becomes a part of our income funds. Aside from enabling beginner investors to leverage our real estate expertise, our funds feature detailed reporting and transparency, providing you with peace of mind you’ll earn stable returns. Call (323) 483-0291 today to get started!
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.