The ETF industry has been
quick to meet investor demand for
income-generating products, helping dividend funds become one of
the fastest-growing sub-sectors of the ETF universe
. Not all dividend ETFs come courtesy of iShares, Vanguard or
other major issuers, though.
One new example of a dividend ETF from a smaller fund sponsor
that income investors may want to consider is the Arrow Dow Jones
Global Yield ETF (NYSE:
). The Arrow Dow Jones Global Yield ETF debuted in early May.
GYLD, which charges 0.75% per year and tracks the Dow Jones
Global Composite Yield Index, is a multi-asset play, meaning the
fund is not focused solely on stocks or bonds.
Rather, GYLD offers exposure to five investment themes: Global
alternatives (19.4%), global corporate bonds (20.7%),
international stocks (19%), global REITs (20%) and global
sovereign debt (20.2%). The semi-equal weight approach among
multiple assets is similar to what the Global X Permanent ETF
), which debuted in February does, but there are stark
differences between these two ETFs.
For example, about a quarter of
PERM's weight is allocated to gold and silver
ETFs and that fund is also heavy on U.S. Treasuries
While the numbers may fluctuate, GYLD aims to hold about 30
securities from each asset class represented withing the fund.
The alternatives group is comprised primarily of master limited
partnerships, some of which likely ring a bell with MLP
investors, including Energy Transfer Partners (NYSE:
) and Martin Midstream Partners (Nasdaq:
GYLD's corporate bond exposure includes issues from Alpha
Natural Resources (NYSE:
), Consol Energy (NYSE:
) and Chesapeake Energy (NYSE:
Regarding GYLD's risk profile, it's neither the fund's MLP nor
corporate bond exposure that is problematic. The fund's
allocations to international stocks and REITs would be a fine
idea in a more sanguine market environment as many of the names
found in the ETF are higher quality, large-caps that are being
battered because of Europe's sovereign debt crisis.
Europe's debt woes provide a good segue into discussing the
biggest risk with GYLD. The ETF's
foreign debt holdings have a PIIHS problem
. Said differently, GYLD holds sovereign debt issued by Portugal,
Ireland, Italy,Hungary and Spain. Obviously, that's a risky
gambit at the moment.
It is widely known that yields have blown out to euro-era
record highs on Spanish sovereigns and Italian bonds are sporting
elevated yields. Those factors imply that in the event of any
good news leading to true austerity measures in Europe,
yield-hunters with an appetite for risk could be rewarded by
GYLD. To that end, GYLD does not skimp on yield as its
underlying index carried a composite yield of
7.43% at the end of the first quarter
The bottom line with GYLD is that it is a unique concept for
yield-hungry investors, but with the fund's exposure to European
sovereigns, this ETF might be more suitable for younger investors
or those with a high tolerance for risk, not those investors
looking for retirement income.
For more on dividend ETFs, click
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