On July 31st, the Global X TargetIncome 5 ETF (OTC:TFIV) and the Global X TargetIncome Plus 2 ETF (TFLT) began trading on the CBOE. Both funds seek to achieve specific yield targets, net of fees, by allocating across 11 ETFs representing different income-paying asset classes.
It is estimated that 10,000 of the 74 million-strong baby boomer generation retires each day – a rate that is expected to continue steadily through 2030.i For many retirees, this day has been over 60 years in the making and carefully planned by contributing to retirement plans, building up a nest egg, and reducing major expenses. Yet despite how much planning may go in to retirement, many investors remain apprehensive about one of the most significant financial changes in their life: transitioning from accumulating assets through savings to depending on those assets to fund their living expenses.
Decades ago, this transition was less of a concern as two-thirds of all retirement assets were held by defined benefit (NYSE:DB) plans.ii DB plans offer participants predictable income streams in retirement, with the plan sponsor assuming all of the investment risk. These days, DB plans make up less than one-third of retirement assets, as many former DB sponsors, particularly those in the private sector, have transitioned to defined contribution (DC) plans instead.
In this transition away from DB plans, individual investors have assumed the risks related to their own retirement, from saving and growing assets during their working years, to generating income and ensuring the longevity of their portfolio during retirement.
In response to this shift in risk, many portfolio managers and advisors have changed their investment approach to focus on outcome-based or goals-based portfolios for their clients. These approaches seek to align the objective of a portfolio with the client’s specific needs, such as growing their nest egg for retirement by a certain date, or targeting a specific monthly income stream. With these portfolios it is often easier for an investor to understand how close they are to achieving their goal and what steps they may need to take to stay on target.
It is with this outcome-based investing approach in mind that we created the Global X TargetIncome family. These ETFs seek to help advisors and investors achieve specific income levels from their assets, while optimizing exposures to mitigate risk. TFIV seeks to achieve a 5% yield, while TFLT seeks to achieve the yield on the current 10 Year US Treasury Note plus 2%. Both funds expect to pay distributions on a monthly basis.
The two ETFs will seek to achieve their respective income goals by tracking indexes that allocate across ETFs representing the following 11 asset classes:
- Global Equities
- US Equities
- US REITs
- MLPs & Energy Infrastructure Equities
- US Treasuries
- US Investment Grade Bonds
- US High Yield Bonds
- US TIPS
- Emerging Market Bonds
- Senior Loans
The funds rebalance on a quarterly basis to realign their exposures to their target levels of income as well as to optimize their risk. Allocations to each underlying holding are made in 5% increments, with a maximum weight of 20% in any one asset class.
TFIV: The Global X TargetIncome 5 ETF seeks to provide broad exposure to income-producing asset classes using a portfolio of ETFs, with the goal of supporting an annualized yield of 5%, net of fees.
TFLT: The Global X TargetIncome Plus 2 ETF seeks to provide broad exposure to income-producing asset classes using a portfolio of ETFs, with the goal of supporting an annualized yield in excess of the U.S. 10-Year Treasury plus 2%, net of fees.
[i] Pew Research Center, “Baby Boomers Retire,” Dec 29, 2010.
[ii] Investment Company Institute, June 21, 2018.
Investing involves risk, including the possible loss of principal. There is no guarantee that the Funds will achieve their investment objectives or produce the targeted price or yield performance. In addition to the normal risks associated with investing, the Fund may invest in MLPs, infrastructure investments, REITs, mortgage REITs, and preferred stocks. Narrowly focused investments may be subject to higher volatility. High yielding stocks are often speculative, high-risk investments. These companies can be paying out more than they can support and may reduce their dividends or stop paying dividends at any time, which could have a material adverse effect on the stock price of these companies and the Fund’s performance. TFLT & TFIC are non-diversified.
Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Global X NAVs are calculated using prices as of 4:00 PM Eastern Time. The closing price is the Mid-Point between the Bid and Ask price as of the close of exchange. Closing price returns do not represent the returns you would receive if you traded shares at other times. Indices are unmanaged and do not include the effect of fees, expenses or sales charges. One cannot invest directly in an index.
Since the Fund’s shares typically do not trade in the secondary market until several days after the Fund’s inception, for the period from inception to the first day of secondary market trading in Shares, the NAV of the Fund is used to calculate market returns.
Carefully consider the Fund’s investment objectives, risks, and charges and expenses before investing. This and other information can be found in the Fund’s summary or full prospectuses which may be obtained at globalxfunds.com. Please read the prospectus carefully before investing.
Global X Management Company LLC serves as an advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC. Global X Funds are not sponsored, endorsed, issued, sold or promoted by Wilshire, nor does Wilshire make any representations regarding the advisability of investing in the Global X Funds. Neither SIDCO nor Global X is affiliated with Wilshire.