Building Better High Yield Portfolios

Balancing diversification and yield

October 2023. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • There is an inverse relationship between yield and total return
  • The ideal yield strategy has a high yield, high Sharpe, and low correlation to stocks
  • The yield-to-downside beta ratio enhances the strategy selection process


@ChatGPT: “What is a rhyme that includes ‘high dividends are for suckers’?”

@Nicolas: “I’m happy to help with rhymes, but it’s important to note that the phrase ‘high dividends are for suckers’ is a negative and dismissive statement about dividends, which may not be suitable in all contexts. However, if you’d like a rhyme that includes this phrase, here’s one:”

“Though some may say, ‘high dividends are for suckers,’
Investors know, they’re more than mere pluckers.
For steady income, they’re tried and true,
In a diversified portfolio, they come through.”

Although the positive spin from ChatGPT is nice to see, it is doubtful that ChatGPT has analyzed high dividend yield strategies. For example, Global X’s SuperDividend U.S. ETF (DIV) invests in the 50 highest dividend-paying stocks in the U.S. and has managed to generate a 30% total return since its inception in 2013, compared to a 150% increase in its benchmark index namely the Russell 1000 Value Index. In this case, high dividend stocks are for suckers.

Fortunately, investors have plenty of choices when it comes to yielding strategies and do not only need to consider stocks. Ideally, such a strategy offers attractive returns on its own as well as a low correlation to equities.

In this research article, we will explore how to build a better high yield portfolio.


We consider nine well-known yield strategies that offer yields ranging from 2.2% for convertible bonds to 10.7% for business development companies (BDCs) (read BDCs: Better Don’t Choose?). All of these are available via ETFs at annual fees ranging from 0.08% to 11.17%.

First, we compute the CAGRs for the de