We believe the market has the potential to produce a powerful move to the upside; in keeping with our game plan, we think it makes some sense to add additional exposure to the portfolio in order to take advantage of this opportunity, asserts David Fabian, money manager and editor of the Flexible Growth & Income Report.

Consequently, we want to enter into a new tactical holding to take advantage of the recent market volatility and expand the equity sleeve of our portfolio in-kind.

In our opinion, we want to add stocks on the more defensive and income generating side of the aisle, as opposed to growth, which makes more sense to add to into a more defined point of weakness in the correction cycle. As such, we are recommending a position in the ProShares S&P 500 Dividend Aristocrats ETF (NOBL).

We think that a position in NOBL strikes the perfect balance of tactical exposure, with just 50 total holdings, alongside the defensive parameters of the dividend aristocrats overlay.

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For those that are not familiar with the S&P 500 Dividend Aristocrats Index, it is a cross section of companies within the S&P 500 which have consecutively raised their dividend on an annual basis for at least 25 years.

These are large, stalwart companies that should provide relative stability even if the market does experience some more turbulence before this correction is completely over.

The Aristocrats Index is also a similar play on the dividend growth theme that has long been a favorite of our firm. We think a more concentrated mix of stock in this space makes a lot of sense at this juncture.

In addition, we are recommending a position in the Nuveen Preferred and Income Term Fund (JPI). Preferred stocks have gotten beat down badly during this correction as a result of the commensurate rise in interest rates and fall in equity prices.

We believe those fears have led to an excellent opportunity to add preferred stocks back to our portfolio as a part of the alternative income generating category.

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Moreover, the best part about preferred CEFs at this juncture is that the underlying asset class, and therefore NAV’s, have recovered more than the market share prices have to-date.

This allows us the ability to purchase a steady 7%+ income stream at an attractive relative discount to net asset value. Looking at 52-week average discounts, JPI typically trades at a -3.8% discount, and it recently rests at -6.76% discount.

Both purchases should work to further diversify our portfolio, increase income, and lower cash holdings. Furthermore, we expect both NOBL and JPI to perform well on a relative basis to the S&P 500 if the correction still has more room on the downside to run.

We are closely monitoring the markets on a day-to-day basis and will continue to make changes to the portfolio as appropriate to capitalize on opportunities or mitigate risks.

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