hold stocks. Others focus on bonds. Still others hold real estate
investment trusts or master limited partnerships. Then there is
the breed of ETF that offers exposure to all those asset class.
Not surprisingly, those funds are called multi-asset ETFs.
The dominant name in the multi-asset ETF arena is the
Guggenheim Multi-Asset Income ETF (NYSE:
), which has over $1 billion in assets under management. However,
a rival fund that has been walking softly offers income investors
another attractive multi-asset option. That ETF is the
Multi-Asset Diversified Income Index Fund (NASDAQ:
A lot of folks probably do not know this, but the Multi-Asset
Diversified Income Index Fund has proven to be one of the best
ETFs to come to market in 2012. At least in terms of
asset-gathering ability. MDIV debuted in late August and already
has $325.2 million in AUM.
To be sure, MDIV delivers on the multi-asset promise as the
fund's breakdown looks like this: An almost 15 percent weight to
high-yield bonds, a 26.4 percent allocation to dividend stocks, a
nearly 20.9 percent weight to MLPs and allocations in the area of
19 percent to preferred stocks and REITs. Regarding the junk bond
allocation, almost all of it comes by way of the iShares iBoxx $
High Yield Corporate Bond Fund (NYSE:
HYG, the largest junk bond ETF, represents 14.8 percent of
MDIV's weight. No other holding accounts for more than 1.95
percent. MDIV's second- through eighth-largest holdings are all
REITs, including CYS Investments (NYSE:
) and American Capital Agency (NASDAQ:
). The ETF's largest MLP holding is QR Energy (NYSE:
), a small-cap MLP with a massive 11 percent yield.
Preferred stocks held by MDIV included issues from Bank of
), J.P. Morgan Chase (NYSE:
), Apache (NYSE:
) and Goldman Sachs (NYSE:
). Among tradition dividend stocks, MDIV features allocations to
), AT&T (NYSE:
) and Diamond Offshore (NYSE:
), among others.
As MDIV's impressive AUM total indicates, investors' interest
in the ETF has been high despite the fact that fund can still be
considered "new." Undoubtedly, that interest has been stoked by a
5.53 percent 30-day SEC yield and a year-to-date return of around
nine percent. CVY, though solidly higher this year, has lagged
MDIV and the former's 30-day SEC yield is slightly lower at 5.47
A common issue that keeps many investors away from new ETFs is
volume, or lack thereof. Fortunately, that is not a problem with
MDIV. While CVY has average daily volume for the trailing three
months of over 226,600 shares, MDIV's daily turnover is north of
For the income investor that is also concerned with valuation,
it is worth noting MDIV sports a price-to-earnings ratio of 13.86
and a price-to-book ratio of 1.63,
according to First Trust data
. By comparison the SPDR S&P 500 (NYSE:
), which has a 30-day SEC yield of less than two percent, has a
P/E of 14.4 and a price-to-book of 2.3.
One potential downside to MDIV is the exposure to preferreds,
which to be precise is 18.58 percent. Investors enjoy the high
yields and the close to guaranteed income offered by preferreds.
However, preferred issues are vulnerable in a rising interest
rate environment and the reality is U.S. interest rates only have
one way to go and it is not lower. On the upside, MLPs have the
potential to remain durable when interest rates rise and many
REITs do not carry massive debt loads. Some that do have debt
issues have been refinancing at today's low rates. MLPs and REITs
combine for over 40 percent of MDIV's weight.
Assuming the Federal Reserve holds rates steady for another 18
to 24 months, MDIV remains an attractive income-generating ETF.
Do not forget that even if MDIV is held for 18 months and that is
when the Fed raises months, the investor that did so will have
collected 18 dividend payments because MDIV pays a monthly
For more on multi-asset ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Profit with More New & Research
. Gain access to a streaming platform with all the information
you need to invest better today.
Click here to start your 14 Day Trial of Benzinga