In today’s dynamic investment landscape, where traditional fixed income faces structural challenges with interest rates falling, equity income strategies have emerged as an alternate solution.  

These strategies combine the potential for income generation with equity exposure, designed to give you a fresh, dynamic way to diversify your portfolio and achieve stable, tax-efficient returns.  

Key Takeaways

• What is Equity Income? A strategy combining steady income with stock market growth potential, using options to generate cash flow while maintaining exposure to equity upside. 
• Tax Efficiency: These strategies often generate capital gains, which are taxed at lower rates than traditional income, offering higher after-tax returns. 
• Balancing Risk and Reward: Equity income bridges the gap between stocks and bonds, offering equity upside with less volatility, making it a great tool for portfolio diversification. 
• Why it Matters Now: In a world of falling interest rates and market uncertainty, these strategies provides a smart, low-risk, and tax-efficient solution for modern investors. 

What is Equity Income? 

At its core, equity income is all about generating consistent income from the stock market—without betting it all on stock prices rising. Unlike traditional equities that prioritize capital appreciation, equity income solutions typically use options-based strategies to aim to deliver steady cash flow, while still giving you a shot at market gains. 

These strategies blend the best of both worlds: balancing steady returns while keeping risk in check. They're a great solution for investors who want a little more stability and the kind of tax-friendly income that can help build a stronger, more balanced portfolio. It's not about chasing the next big thing, but about making sure your money keeps moving in the right direction. 

Tax Efficiency: A Key Benefit of Equity Income 

One of the defining advantages of equity income strategies is their tax efficiency, which stands in stark contrast to traditional fixed-income solutions. Unlike  bonds, which generate interest income taxed at the highest marginal rates, equity income strategies often use options to generate premiums. These premiums are classified as capital gains rather than interest income, allowing investors to benefit from significantly lower tax rates on the distributions they receive.  

Plus, some of these products may return part of their distributions as return of capital, meaning you don’t pay taxes until you sell the investment. This can result in materially higher after-tax returns, especially for high-income investors.  

An example of the tax-efficient yield can be seen below with Purpose Investments Equity Income solutions, where the dark blue bars show the pre-tax yield and the light blue bars illustrate the equivalent pre-tax yield.

Tax Outcomes of Purpose Equity Income Solutions

Equity Income in a Portfolio: Balancing Risk and Returns 

An equity income fund does something that traditional investments often can’t: it bridges the gap between stocks and bonds. With a low beta to bonds and potentially lower beta to equities, these strategies have the potential of adding diversification to portfolios without introducing significant risk.  

Unlike traditional equities, which are highly correlated to market movements, an equity income fund lets you keep a foothold in equities, with less worry about market crashes or swings, by generating returns through options premiums. 

By potentially offering higher yields and lower volatility, an equity income fund can enhance the portfolio’s risk-reward profile, delivering consistent returns with less susceptibility to market swings.

A Balanced Approach for Modern Portfolios 

In an environment of rising market uncertainty and falling interest rates, equity income strategies offer a compelling way to achieve diversification, tax efficiency, and reliable income. These products provide a thoughtful and balanced approach to portfolio construction as they complement equity allocations by providing consistent returns. By incorporating equity income into their investment strategy, investors can enhance after-tax returns while maintaining a lower-risk profile—a win-win in today’s complex financial markets.

If you're a financial advisor, income investor, or financial professional who wants to learn more about Purpose's equity income solutions, explore Purpose Premium Yield Fund , Purpose Enhanced Premium Yield Fund , Purpose Structured Equity Yield Fund , and Purpose Structured Equity Yield Plus Fund to explore our investment approach, fund performance, and review our fund facts.

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