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Many investors are finding themselves in a quandary: With most stock markets trading around record highs, is it time to adjust allocations to avoid some of the damage of a potential market pullback?

The question is especially important for retirees whose investing time horizon is typically shorter than that of the average investor. The current market environment also plays into specific investment recommendations, such as the right mix of exchange-traded funds. Many retirees are looking for yield in their portfolios to help finance their golden years.

The Globe and Mail asked a handful of financial advisers and analysts for their top high-yield ETF picks for retirees in the context of the current market environment.

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John De Goey, portfolio manager, Wellington-Altus Private Wealth

“To my mind, the elephant in the room is the very high level of markets currently,” Mr. De Goey says. “The alarm bells should be ringing.”

He believes investors should stop reaching for yield and prepare to play defence in 2020. With this perspective in mind, Mr. De Goey recommends the BMO Ultra Short-Term Bond ETF (ZST). It’s not a high-yield product, but he likes its “steady, predictable and nearly guaranteed” positive return. Mr. De Goey’s dividend recommendation for all market conditions is the Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY). He likes its broad diversification and low cost, as well as the tax-credit advantage of receiving payouts as Canadian dividends.

Larry Berman, chief investment officer, ETF Capital Management

Mr. Berman cautions investors to be careful when it comes to high-yield investing. “That term typically refers to junk bonds,” he says.

Mr. Berman is not a fan of non-investment-grade corporate debt. “No retiree should be long junk bonds, even though they all want higher yields,” he says.

He favours instead the BMO series of high-dividend covered-call ETFs that invest in some of the highest-quality companies, while mitigating downside risk through the use of covered-call options. His top picks include the BMO Europe High Dividend Covered Call Hedged to CAD ETF (ZWE) and the BMO U.S. High Dividend Covered Call Hedged to CAD ETF (ZWS).

As a way to take advantage of the dividend tax credit that applies to payouts by Canadian companies, Mr. Berman recommends the BMO Canadian High Dividend Covered Call ETF (ZWC), or the BMO Covered Call Utilities ETF (ZWU), which may include pipeline and telecommunication stocks.

John Hood, president and portfolio manager, J.C. Hood Investment Counsel

Mr. Hood also likes the BMO family of covered-call ETFs for retirees seeking yield. Through these funds, he says investors are giving up some of the upside of the stock growth in exchange for a higher yield. And while the management expense ratios (MERs) for these funds are relatively high at 0.72 per cent, as an experienced options trader, he believes it’s worth it. His first pick is the BMO Covered Call Canadian Banks ETF (ZWB). He’s a fan of Canadian banks, saying their strong management puts them in a good position, despite headwinds from consumer and mortgage-debt risks and low-interest margins. He also likes the Canadian High Dividend Covered Call ETF (ZWC).

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Todd Rosenbluth, head of ETF and mutual fund research, CFRA

Mr. Rosenbluth offers two picks from south of the border for investors looking for yield: The first is the Vanguard Dividend Appreciation ETF (VIG), which holds U.S. dividend-paying stocks from companies that have raised their dividends for 10 or more years. These stocks offer a mix of income and growth potential in a diversified low-cost portfolio.

“Companies that have raised dividends for more than a decade are likely to continue doing so for the foreseeable future,” he says. Mr. Rosenbluth notes the fund also provides a strong mix of exposure to all sectors, including cyclical ones such as information technology. His second pick is the iShares iBoxx Investment Grade Corporate Bond ETF (LQD). As the name indicates, the fund holds investment-grade corporate bonds in a low-cost diversified portfolio, offering a stable income stream. Mr. Rosenbluth likes the fund for its healthy stream of income from companies with strong balance sheets and strong earnings power to meet future payments. He also says the ETF is highly liquid, making it easy to trade.

Terry Shaunessy, president and portfolio manager, Shaunessy Investment Counsel

Mr. Shaunessy says he believes retired investors need to think about total return in their investment portfolios. “Trying to rely solely on dividends and yield in such a low-interest-rate environment will cause do-it-yourself investors to take on too much duration risk (buying long-term bonds) and/or credit risk (buying corporate bonds),” he says.

Mr. Shaunessy’s total-return investing approach entails accepting current income and realized capital gains as equal when looking at portfolio returns. For this approach, he favours multiasset ETFs such as the iShares Core Balanced ETF Portfolio (XBAL), the iShares Core Growth ETF Portfolio (XGRO), the Vanguard Balanced Portfolio ETF (VBAL) and the Vanguard Growth Portfolio ETF (VRGO).

“Don’t overthink your investment decision,” Mr. Shaunessy says. “Cheap and reliable passive portfolios – that’s the way to go.”

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