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4 Income ETFs That Hit $1B In 2014

Four ETFs, all of them income-oriented, have crossed the $1 billion threshold in assets under management in the past few months, as investors continue to look for ways to gather hefty dividends and cut attractive coupons in an ongoing era of ultra-low interest rates.

Three of the funds are equity strategies designed around attractive dividend streams, and the fourth is an actively managed junk bond fund that takes on a bit more credit risk in exchange for higher yield. Three of the funds have come to market within the past five years, though one launched in 2006. In sum, the post-crash years of low rates have been good to funds focused on alternative income.

In many ways, the low rates—yields on 10-year Treasurys dropped to 2.63 percent on Monday from 3 percent in January—have fueled flows into risk assets like stocks and helped lift the S'P 500 Index to new records this year after it rose 32 percent last year. It’s up about 6 percent so far in 2014. Junk bonds too—the “equities of the fixed-income world,” have also benefited from the low-rate environment.

At the end of the day, $1 billion in assets means a fund has more than survived; it has thrived, and has become very liquid and relatively easy to trade.

Equity Or Fixed Income?

“What people need to recognize with respect to fixed income, at this point in the rate cycle, is wherever interest rates go from here, returns are going to be low,” said Michael Jones, chairman and chief investment officer at RiverFront Investment Group, in a recent interview with ETF.com’s Alpha Think Tank.

“So, do you need fixed income? It depends upon your ability to withstand the volatility that stocks are inevitably going to serve up,” added Jones.

In the broader ETF space, U.S. high-dividend yield ETFs are currently managing $65.5 billion, while $25.3 billion is in U.S. corporate high-yield ETFs, according to data compiled by ETF.com.

The four funds each crossed that $1 billion threshold of easy tradability sometime this year, and their assets under management are the:

4. $1.1 billion AdvisorShares Peritus High Yield ETF (HYLD | C) YTD Return:6.2 percent

Launched in November 2010, HYLD is an actively managed fund tracking high-yield debt in the U.S. with a value bent. The fund eschews new bond issues for value in bonds traded in the secondary market.

Unlike similar funds, HYLD doesn’t have any baked-in diversification requirements, meaning portfolio exposure can sometimes concentrate in specific sectors and industries. Investors should also note that HYLD may also own ETFs—including leveraged and inverse funds—to boost returns or to hedge exposure.

The fund can be had for 1.25 percent a year, or $125 for every $10,000 invested.


3. $1.8 billion WisdomTree Europe Hedged Equity ETF (HEDJ | B-47) YTD Return:5.7 percent

HEDJ launched in December 2009 and tracks an index of eurozone large-cap dividend-paying companies that derive a majority of revenue from exports outside the eurozone. HEDJ is hedged against the euro for U.S. investors.

The fund’s underlying holdings should do well when the euro is weak or weakening, and the hedge works (in a weakening euro scenario, for example) to protect local gains from getting lost in translation back to greenbacks.

However, the flip side is that in a strengthening euro environment such as 2013, the fund, hit by poor local returns and no foreign exchange gain, would lag unhedged funds, including the iShares MSCI EMU ETF (EZU | A-63) and the Vanguard FTSE Europe ETF (VGK | A-96), by an even greater amount.

The fund has an annual expense of 0.58 percent, or $58 for every $10,000 invested, and had a net distribution yield of 1.9 percent within the past 12 months.


2. $1.1 billion WisdomTree MidCap Dividend Fund (DON | A-69) YTD Return:10 percent

DON is the elder statesman of the four newly minted $1 billion funds. It launched in June 2006, and tracks a dividend-weighted index of U.S. midcap stocks with an overweight in financials (particularly REITs) and utilities. Those are sectors that RiverFront’s CIO Michael Jones said equity investors should mine for because of their lower volatility features.

“One thing is to look into your equity portfolio and see where you can create lower downside risk, lower-volatility components of your portfolio strategy so that you can have more equity than you would normally have,” said Jones.

“Things like MLPs and REITs are very attractively priced based on our ‘Price Matters’ work. Look for opportunities like that within your equity strategies,” he noted.

DON has an expense ratio of 0.38 percent, or $38 for every $10,000, and had a distribution yield of 2.2 percent for the past 12 months.


1. $1.1 billion Global X SuperDividend ETF (SDIV | B-41) YTD Return:13.4 percent

SDIV, which launched in June 2011, tracks an equal-weighted index of 100 global securities with high yields and, similar to DON, strongly favors REITs. The ETF’s equal-weight methodology technically is a less-aggressive hunt for yield than its competitors because of its slant toward smaller-cap companies that typically have lower dividend yields than larger-cap companies.

However, SDIV has the highest dividend yield in the segment of 5.9 percent, which, Spencer Bogart, an ETF specialist at ETF.com, said is more of an anomaly than a predictable result of the fund’s methodology.

“The fund ended up with larger positions in some smaller companies that later boosted the dividend yield,” he said.

However, Paul Britt, senor ETF specialist at ETF.com, said investors should more closely scrutinize yields relative to the ETF’s price action.

“With yields, if you have an ETF that pays a dividend of 10 cents per share every month, the yields go up if the price of the ETF goes down,” said Britt. “So sometimes yields are good, but other times they’re good for the wrong reasons.”

SDIV has an expense ratio of 0.58 percent, or $58 for every $10,000 invested.


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