are here to stay, as the Guggenheim Multi-Asset Income ETF's
(NYSEArca:CVY) recent crossing of the $1 billion threshold in
assets clearly suggests.
CVY launched in 2006, and has enjoyed the role of first-mover in
the space, but newcomers to the pocket of multi-asset income funds
are benefiting from investor interest too.
The most recent entrant, the First Trust Multi-Asset Diversified
Income ETF (NYSEArca:MDIV), has pulled in $360 million in net new
investor money so far this year, leading all peer funds in net
inflows and bringing its total assets under management to $440
million. It came to market in August of last summer.
This is far from a two-horse race, however.
In addition to First Trust's MDIV, three other funds had
successful launches in 2012 as well:The SPDR SSgA Income Allocation
(NYSEArca:INKM), the iShares Morningstar Multi-Asset Income Index
Fund (NYSEArca:IYLD) and the Arrow Dow Jones Global Yield ETF
After about a year on the market, each fund holds assets in the
$80 million to $170 million range, signaling a successful
CVY's sister fund, the Guggenheim International Multi-Asset
Income ETF (NYSEArca:HGI), rounds out the space, with $124
Given the crowded field, I'll focus on the two top funds by
assets, CVY and MDIV.
MDIV holds the edge on yield over CVY, with a 12-month yield
(the sum of dividend per share amounts over the last 12 months
divided by the current share price) of 5.5 percent versus 5.0
percent for CVY. MDIV's indicated yield-the most recent dividend,
annualized, divided by current share price-comes in at 6.7 percent,
beating CVY's 5.2 percent, according to data from Bloomberg.
CVY holds the year-to-date total-return edge, however. Through
May 21, CVY has returned 15.6 percent to MDIV's 14.8 percent.
Why Multi-Asset Income ETFs?
Before I dive into the portfolios that drove performance for
these two funds, let's take a step back.
Multi-asset income funds have a broad mandate in their quest for
yield. While there's no shortage of income plays these days, most
are confined within their respective asset class or subasset class
buckets. Dividend funds hold equities and maybe some REITs.
High-yield funds hold junk bonds. MLP funds focus on royalty-paying
infrastructure pass-through partnerships.
In contrast, multi-asset income ETFs have the freedom to roam
across asset classes in search of yield.
In this sense, the funds move upstream, from
ETFs-as-building-blocks to ETFs-as-allocators. This distinction is
nontrivial in my view, as the funds encroach into the space where
advisors, registered investment advisors and other professionals
earn their keep as allocators.
Still, finding the best mix of high-yielding assets isn't in
every advisor's wheelhouse, even if they have the time to try.
Here's how the CVY and MDIV skin the cat.
CVY overwhelmingly favors equities, and its top three names are
Intel, Pfizer and Verizon. At first glance, this doesn't exactly
smack of "multi-asset."
Note, however, that the CVY's equity allocation includes
substantial stakes in REITs and MLPs, which are excluded from some
plain-vanilla equity dividend ETFs. CVY allocates about 8 percent
to preferred stocks-those hybrid securities with perpetual cash
flows that straddle fixed income and equity.
In all, CVY's equity basket looks more like a conventional
dividend fund, with slightly lower yield compared with MDIV, but
with strong returns powered by a surging equity markets. CVY's
returns seem more susceptible to slumping if the wheels fall off
the equity rally.
MDIV meanwhile dials up exposure from other asset classes, which
gooses yield as it increases other risks (interest rate, credit
risk from junk bonds and tax-uncertainty risks from MLPs).
While neither fund is particularly cheap to hold, MDIV holds the
edge on fees, with an annual expense ratio of 62 basis points,
compared with CVY's 77 basis points.
Both funds trade well, consistent with strong and growing assets
under management:CVY has slightly tighter spreads, but MDIV has
more daily volume.
What all this means is that the multi-asset income space has
matured. Investors now have a range of viable ETF choices, backed
with real assets and liquidity.
CVY, MDIV and the other funds mentioned here provide
off-the-shelf, diversified exposure to a variety of yield-producing
assets in a transparent, tax-efficient wrapper. They also provide a
nice contrast to the precise but narrowly focused exposure from
ETFs covering individual yield-producing asset classes.
At the time this article was written, the author held no
positions in the securities mentioned. Contact Paul Britt at
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