From the lows of second quarter of 2012, to current levels
near pre-recession highs, U.S. equities have had a
fantastic run up thus far. Having said this and also considering
the present state of affairs for the U.S. investors, the only
reason to complain lies in yields.
In fact low yields have for long been a pain for investors and
the situation hasn't changed much either. Actually the primary
catalyst behind the surge in equities has caused yields to remain
extremely low. And no points for guessing - it is the Federal
Reserve's monetary easing program.(See
Real Estate ETFs--Real Winners in 2013?
In the light of the above, it is prudent to discuss an ETF
which 1) provides ample scope for current income by allocating
across a variety of high yielding avenues, and at the same time
2) capitalizes on a broad market uptrend that results in capital
Guggenheim Multi Asset Income ETF (
is a semi-active ETF which primarily aims to provide high levels
of current income along with a scope of capital growth. The ETF
tracks the Zacks Multi-Asset Income Index.
The Index is comprised of a variety of higher yielding
investment avenues such as REITs, MLPs and Preferred Stocks as
well as other high yielding U.S. equities which provide a good
opportunity for capital appreciation. It also invests in Closed
Ended Funds (CEF's) and American Depository Receipts (ADRs).
From individual holdings perspective CVY currently allocates
across a portfolio of 149 securities with less than 21%
allocation in the top 10 holdings. In fact Intel Corp and Pfizer
Inc, are two of its top holdings with around 3% allocation to
each. CVY has an asset base of around $950.90 million and charges
investors 60 basis points in fees and expenses. (Read
3 ETF Strategies For Long Term Success
Risks to Consider
In terms of historical volatility, CVY is less risky than the
broader market. If we quantify the results we find that the ETF
has a three year annualized standard deviation of just 15.80%
compared to the S&P 500 exhibiting a three year volatility of
In this regard, one of the most important points to consider
out here is that CVY is primarily an allocation ETF. It allocates
across a mix of high yielding avenues as well as avenues which
provide a decent scope of capital appreciation.
Primarily the higher yielding avenues in its portfolio like
MLPs, REITs and Preferred Stocks exhibit low correlations
with. Investing in a portfolio of diverse assets lowers the
volatility of ETF. (See
Time to Exit Junk Bonds ETFs?
However, this does not make the ETF alien to the broader
picture of U.S. equities. In fact, the responsiveness and
correlation of the ETF to U.S. equities is pretty decent as
indicated by a Beta value of 0.82 and an R-Squared Value of
91.74% versus the S&P 500 Index.
Also, another very important point to note here is that
despite having international exposure, CVY will be free from any
currency risk that may understate returns. This is due to the
fact that the ETF holds only U.S. Dollar denominated assets. Its
international exposure arises out of its allocation to ADRs which
are U.S. dollar denominated.
Comparative performance versus Broader
The chart above shows the comparative performance of CVY with
an S&P 500 tracking ETF, the SPDR S&P 500 ETF (SPY). The
chart has been constructed considering a slightly longer term
perspective (i.e. 5 years) on the basis of total returns (i.e.
dividends plus appreciation) (read
Have You Overlooked These Dividend ETFs?
As we can see, the income ETF CVY returning 43.5% has almost
crushed SPY returning 28.04%. Of course, the base effect has a
long way to play here as that time the equity markets were facing
massive sell offs on account of the sub-prime mortgage crisis.
However, considering the shorter term play there is very little
to choose from the two
(see more in the
Zacks ETF Rank Guide
While this might mean very little to growth oriented investors
as it ultimately sums up to similar total returns, it might prove
to be gold dust for conservative income seeking investors
primarily due to two reasons (read
Is This a Bull Market for Retail ETFs?
Firstly, it has a solid dividend yield of around 5% which
takes care of their current income requirements, and secondly, it
gives them a shot at an investment avenue which fetches similar
total returns as the broader equity markets but at a
comparatively lower level of risk. Or course needless to say the
risk is pretty much smoothed out thanks to the robust dividend
payments of the ETF.
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GUGG-MULTI-ASST (CVY): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
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