U.S. Treasuries' yields are still hovering near their lows,
leaving the investors to look for alternative sources of current
income. As a result, some of the products providing high yields
such as high yield bonds, high dividend equities and preferred
shares as well as related ETFs have become the popular source of
current income among income investors.
Below we present some of the ETFs that provide the extra yield
that the yield-starved investors search for in current ultra-low
Preferred Stock ETFs
Investors seeking for a stable and steady source of income in
this uncertain economic environment can look to invest in preferred
stock ETFs. Preferred shares are hybrid instrument which boast the
traits of both equity as well as fixed income bonds. These shares
are mostly issued by financial, telecommunication and utility
Complete Guide to Preferred Stock ETF Investing
Preferred shares get preference over equity shares in terms of
dividend payment and priority in payment in the event of bankruptcy
of a company. Preferred stock ETF carry a fixed rate of dividend so
that income starved investors can be assured of the current income
when investing in these ETFs. Many of these ETFs are now yielding
We would like to highlight four preferred share ETFs that are
available to U.S. investors who are willing to invest in this slice
of the market. (
Are Preferred Stock ETFs Worth the Risk?
SPDR Wells Fargo Preferred Stock (
PSK tracks the pre-expenses price and yield performance of Wells
Fargo Hybrid and Preferred Securities Aggregate Index. This fund
has a total asset base of $298.7 million and holdings of 136
shares. The ETF currently has a yield of 6.12% while it charges 45
basis points annually for expenses. (
11 Great Dividend ETFs
Among 136 constituents, 82.67% are from the family of preferred
shares while the rest are either equity shares or bonds. The fund
also appears to be non-biased towards the top 10 holdings as just
20% of the assets go towards them. Among the top 10 holdings,
Barclays Bank Plc is the first preferred holding while among others
the fund has not invested more than 2.27%.
The fund has delivered a return of 5.78% over a period of one
PowerShares Preferred ETF (
This ETF tracks the BofA Merrill Lynch Core Plus Fixed Rate
Preferred Securities Index. The Index has been designed to reflect
the total return performance of the U.S. dollar-denominated
preferred securities market. The fund has a yield of 6.26%, while
it charges 49 basis points annually for expenses.
The fund's total asset base of $1,970.6 million is spread out
among 149 holdings. The fund is also protected from
company-specific risk as just 32.6% of the assets are invested in
the top 10 holdings.
Among individual holdings, Citigroup Capital, Wells Fargo &
Company PFD and Barclays BK PLC get the top three preferreds.
PowerShares Financial Preferred ETF (
PGF seeks to replicate the Wells Fargo Hybrid & Preferred
Securities Financial Index which has been designed to track the
performance of preferred securities issued by financial
institutions in the U.S. markets. This preferred ETF has a yield of
5.84%, somewhat lower than the other two in the list but still
quite impressive. (
Market Vectors Debuts Preferred ex Financials ETF
The fund's exposure to holdings is also limited to 55 stocks,
comparatively a small basket than PGX and PSK. The fund appears to
be moderately spread out among its constituents as just 44% of the
asset base goes towards the top 10 holdings. HSBC Holdings gets the
highest allocation in the fund followed by Bank of America and ING
Groep NV PFD.
Investment in this fund may prove to be somewhat expensive in
the list as the cost comes in at 66 basis points annually.
iShares S&P U.S. Preferred Stock ETF (
For a broader exposure in preferred stock investing, investors
can consider PFF, which is not only rich in asset base, but also
trades at high volume levels.
The fund has an attractive dividend yield of 5.74%, while as it
charges a fee of 49 basis points, which is 1 basis point lower than
the category average.
The asset base of $10,073.7 million is invested in a holding of
267 stocks, with each holding not exceeding 2.58% of the assets.
Thus, company-specific risk is very low in this fund.
High Yield Bond ETFs
Fixed income investment plays a very important role in any
investor portfolio especially at times of a floundering economy. As
interest rates have hit rock bottom, many investors are looking for
fixed income investments that provide a high yield compared with
the more popular and 'safer' fixed income instruments.
In this context, high yield bond ETFs have gained immense
popularity thereby attracting the attention of investors.
Additionally, investing in individual high yield bonds may involve
higher risk and volatility compared to investment in high yield
bond ETFs (
Seven Biggest Bond ETFs by Assets under
We have highlighted four high yield bond ETFs that could help
the investor to boost their current income by allocating a portion
of the asset to this asset class.
iBoxx $ High Yield Corporate Bond Fund (
When it comes to junk bond investing, then HYG is most popular
ETF among the investors. In this uncertain economic scenario, HYG
provides an impressive yield of 6.56% and as a result, it has been
able to amass $16,598.7 million in asset base. (
Top Four High Yield Bond ETFs
The fund holds 662 corporate junk bonds with double-digit
allocation to Consumer Staples, Oil & Gas, Financials and
HYG's average yield to maturity stands at 5.74% with an
effective duration of 3.85 years while the coupon rate comes in at
7.78%. HYG charges a fee of 50 basis points annually which is just
1 basis point higher than the category average.
SPDR Barclays Capital High Yield Bond ETF (
JNK is also very popular among investors seeking to invest in
junk bonds. The ETF has $12,246.5 million in assets under
management which it allocates to a portfolio of 243 bonds.
The fund has a yield of 6.95% which is higher than what is
offered by HYG. Also, the fund is more heavily traded than its
iShares counterpart. Additionally, JNK has an edge in expenses,
charging 40 basis points, which is not only lower than HYG but also
on the lower side of the category average.
With an effective duration of 4.2 years, the fund's yield to
maturity stands at 6.6%.
PowerShares Fundamental High Yield Corporate Bond
PHB's weightings' determination for securities makes it
different from JNK and HYG as this ETF takes into consideration
certain fundamental factors before including securities in its
holding list. With this methodology, the ETF aims to provide
exposure to those junk bond issuers which are of high quality and
low debt level.(
Three Outperforming Active ETFs
With lower risk comes a somewhat lower yield. So, investors who
desire to curtail the credit risk in their portfolio simultaneously
seeking a decent yield can invest in this ETF. The yield of the ETF
stands at 5.00%, which is lower than what JNK and HYG offer;
however, it is quite impressive considering the Treasury Bonds
Top Three High Yield Junk Bond ETFs
The fund is home to 216 junk bonds with 97% exposure to
corporate bonds while the top 10 holdings just have a share of
14.3% which signifies less company-specific risk.
The fund has a tilt towards consumer discretionary in which the
total exposure stands at 26.5% while energy and financial sectors
also have double-digit allocation. (
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The fund has an effective duration of 3.93 years, while the
average yield to maturity and average coupon rate are 5.30% and
7.27%, respectively. The cost to the investors for investment in
this fund stands at 50 basis points annually.
Peritus High Yield ETF (
For a more active approach to junk bond ETF investing,
investment in HYLD from AdvisorShares can be considered. (
AdvisorShares Planning New Active Income ETF
The fund has a minimal focus on high leveraged buyouts and uses
a 'Hedged HY' strategy which enables it to shift to .S. T-Bills
whenever there is pressure on the lower quality debt, a feature
unique to the fund.
The fund also provides an impressive yield of 9.08% to the
investors but the investors are charged 1.36% for investing in the
The fund provides exposure to 37 junk corporate bonds and has a
lower effective duration of 3.54 years and a higher yield to
maturity of 10.9%.
High Yield Dividend ETFs
Many investors seeking current income have eventually shifted
their focus to dividend paying stocks or dividend ETFs.
High dividend paying stocks play their defensive role and
provide decent returns to the investor when the market tends to be
Can You Beat These High Dividend ETFs
With this backdrop and an increased focus on yield by many
investors, we have highlighted four funds below which have high
Global X SuperDividend ETF (
For a global exposure to the ETF space, investors can invest in
Global X's SDIV. The fund tracks the price and performance of the
Solactive Global SuperDividend Index, thereby giving investors an
option to target dividend paying stocks on a global basis.
With asset under management of $122.4 million, this fund
provides an attractive dividend yield of 7.76%. (
Inside The SuperDividend ETF
SDIV has an edge in expenses as it charges an expense ratio of
58 basis points, the lowest on the list.
The ETF provides exposure to 101 high dividend yielding stocks
while around 12.9% of which make up the top 10 holdings. Among
sector holdings, real estate, financials and telecommunication
receive the highest allocation, collectively comprising 58.9% of
its asset base. (
The Introductory Guide to Real Estate ETF
Guggenheim S&P Global Dividend Opportunities Index
Guggenheim's LVL is another global fund with a high yield. The
product tracks the S&P Global Dividend Opportunities NR Index,
which consists of 100 stocks and ADRs that have at least $1 billion
in market cap and are also high yielders. The fund provides a yield
The product's assets are pretty well spread out with large caps
making 33.2% of the asset base while mid and small caps accounting
for 63.4% of the portfolio. Among individual holdings also, the
fund does not appear to be much concentrated in the top 10 where
32.8% of the asset base is invested.
Among sector holdings dividend focused ETFs are generally
inclined towards telecommunication and financials, and LVL is not
an exception. The fund charges investors 60 basis points
First Trust Dow Jones Global Select Dividend Index (
FGD is another high yield dividend fund with a global focus. The
product tracks the Dow Jones Global Select Dividend Index which
looks to give exposure to about 100 stocks across a variety of
markets around the globe.
The ETF focuses on companies that have a current year
dividend-per-share greater than the trailing five-year annual
average while payout ratios must be less than 60% for American and
European securities. By doing this, investors could gain exposure
to a group of companies that are increasing their payouts but still
have a nice buffer of safety. (
Three Excellent Dividend ETFs for Safety and
The fund has a dividend yield of 5.1%, a good level considering
the focus of the fund. The fund manages an asset base of $204
million which it invests in a basket of 100 dividend paying stocks.
Of this, 17.8% is invested in the top 10 holdings.
Like many other dividend focused funds, FGD also has a tilt
towards telecommunication, financials, and utilities with a total
asset investment of approximately 51.5%. The fund charges an
expense ratio of 60 basis points annually.
Dow Jones International Select Dividend Index Fund (
For another global fund with a high yield, investors also have
iShares' IDV to consider. The product tracks the Dow Jones EPAC
Select Dividend Index, which consists of 101 stocks that have
provided relatively in one hundred of the high dividend yields on a
consistent basis over time. The fund produces a yield of 4.98% on a
30-day SEC yield basis.
The product's assets are pretty well spread out with large caps
making 64.1% of the asset base while mid and small caps accounting
for 35.3% of the portfolio. Among individual holdings also, the
fund does not appear to be concentrated in the top 10 as just 28.4%
of the asset base is invested.
For sectors, financials accounts for 21.2% of the total, while
consumer staples and utility stocks round out the top three. Region
exposure is tilted towards Europe in the top spot
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