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Building Better High Yield Portfolios – III

Balancing diversification and yield

Nicolas Rabener
10 min read
2 Jun 2025

SUMMARY

  • Most yield strategies generated lower returns and Sharpe ratios than the S&P 500
  • Furthermore, most of these are highly correlated to the U.S. stock market
  • Optimization can help to select yield strategies that maximize diversification benefits

INTRODUCTION

Imagine you’ve just left your job and are looking to replace your lost income with yield from your investment portfolio. A financial advisor pitches you a compelling idea: a fund that selects the 50 highest dividend-paying U.S. stocks, all screened to be less risky than the average stock. Monthly distributions, just like your old paycheck – what’s not to like?

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