Market volatility trap? Why this income-first strategy may ‘leave a lot on the table’

The market volatility may be leading retail investors astray.

According to Kathmere Capital Management’s Nick Ryder, they shouldn’t use the current backdrop as an excuse to dive into defensive trades — including dividend-paying stocks and bonds.

“Oftentimes, we just see too often people taking an income-focused approach, and it leaves a lot on the table,” the firm’s chief investment officer told CNBC’s “ETF Edge” this week. “We generally just advise for all of our clients to take a total return-oriented approach … that’s going to apply across stocks, bonds and everything in between within a portfolio.”

Ryder, whose firm has $3.5 billion in assets under management, warns against so-called “yield-chasing.”

“Within fixed income, it could be yield-chasing in terms of moving further out interest rate risk, taking greater amounts of duration and portfolio, [and] moving from investment grade to high-yield bonds —which have dramatically different risk and return expectations,” he added.

Ryder contends income shouldn’t be the foundation of long-term portfolios. He indicates investors are better served starting with goals and risk tolerance, then adding income, because pullbacks are part of long-term investing. An income-first approach, he cautions, can quietly push portfolios into unintended bets.

He’s also optimistic about the macro backdrop.

“Overall, the economy has been pretty darn resilient,” added Ryder. “You’ve seen corporate profitability be very resilient.”

That total-return approach is also why Amplify ETFs’ Christian Magoon is urging investors not to let the distribution number drive the decisions. 

“We think being smart about yield means balancing attractive yield with upside or long-term capital appreciation … not just going for a maximum possible yield,” the firm’s CEO said in the same interview. “We think that’s a yield trap.”