The stock market sell-off that started in September has spared
very few stocks or
. But there are a few defying the swoon that are also paying
juicy dividends, rewarding investors to sit on their hands.
Here's an overview of five ETFs yielding 7% or more that are
also trading above their 200-day moving averages, unlike some of
the major indexes.
1.Peritus High Yield ETF (
12-month yield: 8.37%.
Annual expenses: 1.35%.
HYLD has returned 11.85% year to date vs. 4.31% for the
benchmark Barclays U.S. Aggregate Bond index, putting it No. 1 in
its Morningstar category.
Actively managed by Peritus I Asset Management, the fund buys
noninvestment grade bonds -- commonly referred to as junk bonds
-- that are trading below face value. This allows for potential
price appreciation on top of the yield income.
Peritus says it shuns credit ratings from the rating agencies
in favor of its own research. It prefers buying bonds issued by
companies that offer an "essential product or service," generate
free cash flow and have hard assets not priced into the
.UBS E-TRACS Wells Fargo Business Development Company ETN (
12-month yield: 7.08%.
Annual expenses: 0.85%.
BDCS has surged 27.30% year to date vs. 12.57% for the S&P
500. This exchange traded note tracks an index of 28 companies
engaged in lending to small and midsized companies at high
interest rates while also buying stakes in the companies. They
may also get involved in managing the company.
The top holdings in Wells Fargo Business Development Company
Index and their respective index weightings:
1.Ares Capital (
2.Prospect Capital (
3.American Capital (
4.Apollo Investment (AINV) 8.07%.
5.Fifth Street Finance (FSC) 6.68%.
6.Solar Capital (SLRC) 6.60%.
7.BlackRock Kelso Capital (BKCC) 5.52%.
8.PennantPark Investment (PNNT) 4.57%.
9.Main Street Capital (MAIN) 4.33%.
10.Triangle Capital (TCAP) 3.97%.
As an exchange traded note, BDCS is an unsecured debt
obligation issued by UBS. Its value may be affected by changes in
UBS' credit worthiness. If UBS defaults, investors could lose all
of their money.
UBS E-TRACS 2X
Wells Fargo Business Development Company ETN (BDCL)
12-month yield: 13.22%.
Annual expenses: 0.85%.
BDCL doubles the daily price movements and pays twice the
yield of BDCS.
4.SPDR Barclays Capital High Yield Bond (JNK)
12-month yield: 6.89%.
Annual expenses: 0.40%.
JNK has returned 10.45% year to date. High-yield bonds make
higher interest payments because the issuing companies have low
credit quality or they're highly leveraged or indebted, which
increases the risk of default or bankruptcy. But an ETF with 279
holdings minimizes the impact of defaults.
The default rate in 2009 was about 13% and fell to 3.3% by the
end of 2010. On a trailing 12-month basis the current high-yield
default rate was only 2.2% as of July 2012, according to
"Disruptions in the bond markets have caused this fund to
experience significant swings in the premium and discounts to its
net asset value (NAV)," Timothy Strauts, an analyst at
Morningstar wrote. "While we believe that the problems actually
lie in the markets of the underlying securities, investors should
be aware of the premium or discount to NAV before purchasing this
fund and be prepared to handle the gyrations."
JNK's correction during the recent sell-off has been very mild
compared with the market. It's now trading only 1% below its
52-week high, while the market has fallen 6% off its multiyear
Investors have piled into bonds in search of dividend income
as interest rates hover at record lows. Should rates rise, bond
prices will fall. Prices and yields move in opposite
A major risk is that in bear markets, high-yield bonds can
collapse just as badly as stocks. High-yield bond prices and
spreads fluctuate with the market's expectations of high-yield
iShares iBoxx $
High Yield Corporate Bond (HYG)
12-month yield: 6.78%.
Annual expenses: 0.50%.
HYG holds an index of junk bonds just like JNK. Its portfolio
is nearly three times bigger with more than 600 bonds.