WisdomTree Files For High-Yielding S'P 500 Fund

By Hannah Tool,

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WisdomTree filed regulatory paperwork that would bring to market an S&P 500 managed-distribution fund, offering simultaneous exposure to the ETF market's three popular S&P 500 funds with the added allure of a 6 percent annual yield.

The prospectus didn't immediately make clear how a fund that principally owns three ETFs with yields of between 1.95 and 2.10 percent-the SPDR S&P 500 ETF (NYSEArca:SPY), the iShares Core S&P 500 ETF (NYSEArca:IVV) and the Vanguard S&P 500 ETF (NYSEArca:VOO)-will triple that return to reach the distribution rate of 6 percent.

Companies don't comment on registration statements until they become 'effective' as a matter of course, but according to the prospectus, "the fund's actual annual distribution rate could be higher or lower than the targeted annual distribution based on market factors occurring during the year."

The search for yield in the current market, with the Fed's constant downward pressure on borrowing rates since the crash of 2008-2009, has turned the search for yield into a very creative endeavor. And, this WisdomTree filing is perhaps one of the most peculiar strategies to rear its head.

The fund, which WisdomTree hasn't yet tagged a ticker or price to, will be a "fund of funds," equally weighting the three ETFs that make up its underlying index, the S&P 500 Managed Distribution Index. However, between quarterly rebalancing, the fund may veer off that equally weighted strategy by investing in shares of the underlying ETFs or the securities that make up the portfolios of those individual ETFs.

Holding shares of ETFs or the securities within those funds may be one way this fund makes up the yield gap. The prospectus also mentioned that the fund may invest in derivative instruments, perhaps another avenue through which the fund may ramp up yield.

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This article appears in: Investing ETFs
Referenced Stocks: IVV , SPY , VOO

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