A close cousin of TFIV is the Global X TargetIncome Plus 2 ETF (TFLT), which targets a 2% annual distribution rate. Neither of the Global X targeted distribution funds use leverage.
Sizing Up The Market
As fewer workers receive coverage from traditional pension plans, it’s putting pressure on retirement savers to find alternative income solutions after they stop working. Just 16% of all private-sector workers have access to a pension plan compared to 86% of state and local government employees, according to the Bureau of Labor Statistics' National Compensation Survey of 2019. That means the responsibility for replacing lost pension income will fall on the shoulders of retirees. As such, any investment vehicle with annuity-like features could find a willing audience.
And the potential audience for targeted distribution funds is big. There are almost 80 million baby boomers, and approximately 10,000 people are retiring every single day. It's no exaggeration to say that income replacement for retirees is a big concern.
Looking Ahead
How will targeted distribution funds perform during the next bear market? Will they hit their income distribution targets or will they fail? Because these ETFs are so new (all three funds profiled here launched in 2018), it’s too early to know.
But if targeted distribution funds can provide a stable source of retirement income in rocky times, this new class of ETFs could follow the path of other successful targeted retirement date and bond maturity solutions within the fund industry. Time will tell.
Ron DeLegge is founder and chief portfolio strategist at ETFguide, and is the author of “Habits Of The Investing Greats.”