Protect Your Portfolio with These Multi-Asset Income ETFs - ETF News And Commentary


With volatility levels picking up a bit in July, some investors are growing a bit more fearful. These concerns aren't entirely unfounded either, as global worries-be it with a debt default in Argentina, or rising tensions in Russia-are at the forefront of investors' minds right now.

Still, even with the volatility and concerns in a few global markets, there are plenty of reasons to still be bullish on the economic outlook. Q2 GDP more than offset the terrible Q1, while consumer confidence is at the highest level since before the Great Recession began.

Multi asset income ETFs provide exposure to bonds, stocks, and various high yield securities. Clearly, two very different themes are tugging on the market, leaving investors at odds about what to do in the near term. While either shifting more into lower risk securities, or taking the opposite approach, going into higher risk stocks, are definitely options that many are taking right now, a more balanced attack could be a more prudent way to go (see 3 Excellent Dividend ETFs for Growth and Income ).

Fortunately thanks to the ETF market, there are a number of options that stay invested in stocks, but also save a component of their portfolios for either fixed income securities, or other lower-correlated assets. Plus, many of these funds in the so-called 'multi-asset' market pay out robust yields too.  

This is important because even if markets do end up turning south, a solid yield of over 5% should definitely help to cushion the blow. But at the same time, thanks to the equity component in these ETFs, they should also participate in any further uptrend, should it materialize in the days ahead.

So if you are looking for a nice combination of yield and lower volatility that still has some equity-like appreciation potential, consider any of the multi-asset ETFs highlighted below. All of these funds have the potential to outperform in rough markets-and they all did far better than the S&P 500 in that rough July 31 st session-while they still have the ability to crush their bond-only cousins if markets shape up to close out the summer.

Arrow Dow Jones Global Yield ETF ( GYLD )

This ETF looks to follow the Dow Jones Global Composite Yield Index, a multi-asset composite index comprised of equally weighted exposure across five categories. These categories include global equity, real estate, alternative, corporate debt, and sovereign debt, and each category has 30 holdings for a total of 150 in the ETF.

In terms of country exposure, the U.S. accounts for 41% of the total, while South Africa, Australia, France, and Turkey round out the rest of the top five. Meanwhile, for sectors, financials, oil and government securities take the top spots, with all accounting for at least 20% of the total (see Inside 3 Of the Newest Income ETFs to Hit the Market ).

The ETF charges investors 75 basis points a year in fees and has about $185 million in assets under management. For a yield, this ETF pays out 5.7% in 30-Day SEC terms, making it a pretty robust choice for those seeking income.

Multi-Asset Diversified Income Index Fund ( MDIV )

MDIV follows the NASDAQ Multi-Asset Diversified Income Index, which consists of stocks/depository receipts (25%), REITs (20%), preferred securities (20%), MLPs (20%), and ETFs (15%). This gives MDIV a greater focus on equities than others, so volatility may be higher, but the inclusion of the ETF-which is bonds-- and preferred securities should act as a solid fixed income component.  

In terms of holdings, iShares' HYG accounts for nearly 15% of the portfolio, and the rest is pretty well diversified with no security accounting for more than 1.7% of assets. With that being said, current top holdings include PennyMac Mortgage Investment Trust, QR Energy LP, and Chimera Investment, all of which make up around 1.5% of the total exposure in the ETF (see 3 Income ETFs for Yield Starved Investors ).

This fund charges investors 60 basis points a year in fees, while the asset base is impressive at about three quarters of a billion dollars. MDIV pays a 30-Day Sec yield of 5.25%, but it may have slightly more equity-like appreciation capabilities than some of the other products on this list.

iShares Morningstar Multi-Asset Income ETF ( IYLD )

IYLD is actually an ETF of ETFs, holding a variety of iShares funds for its exposure by tracking the Morningstar Multi-Asset High Income Index. The portfolio puts 60% of its assets in bonds, 20% in stocks, and 20% in alternative income sources.

The top ETFs in this fund include the high yield focused HYG , the long-term bond TLT , and then REM for mortgage REIT exposure and HDV for high dividend stock access. The fund is pretty concentrated in American securities though, as these account for close to 75% of assets, while Treasury bonds make up the biggest single weight at close to 30% of the total.

For expenses, this fund costs 60 basis points a year after fee waivers, while AUM comes in at a $170 million. IYLD does offer up a robust 5.9% 30-Day SEC yield, while its equity beta comes in at just 0.25 so it could be a low volatility choice (also see 3 MLP ETFs for Excellent Income and Growth ).

Bottom Line

These three ETFs should provide investors with both protection against rough market conditions, and sizable yields as well. In fact, each of the above ETFs has a 30-Day SEC payout that exceeds 5%, a level that is roughly 2.5 times the S&P 500.

So if you are a little worried about current market conditions, but still want to be fully-invested, consider any of the income-focused multi-asset ETFs listed above. They should all satisfy an investor's need for greater stability in uncertain times, while solid income payouts will provide a nice cushion no matter what happens to close out the year.

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ARROW-DJ GL YLD (GYLD): ETF Research Reports

FT-NDQ MA DIIF (MDIV): ETF Research Reports

ISHARS-MO MA (IYLD): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: GYLD , MDIV

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