Three Country ETFs with Shockingly High Yields
With Treasury rates still near historic lows, many investors are still avoiding T-bills for their current income needs. This trend could continue well into the future as well, as the Fed seems ready to buy more bonds if the economy stays in the doldrums, suggesting that low rates—or possibly even more depressed levels—could be here for quite some time to come.
As a result, many investors have looked to the top stocks in the S&P 500 for their dividend exposure in this uncertain time. However, many indexes of dividend payers in the American market probably leave many investors wanting more.
After all, the broad S&P 500 yields just under 2%, while the SPDR S&P Dividend ETF (SDY) offers up a 3.2% annual yield. Meanwhile, other popular dividend-focused ETFs like VIG or VYM don’t do any better as these two products, respectively, pay out 2.1% and 2.8% on an annual basis (See Closed End ETFs for Forgotten 7% Yield?).
Due to this, investors have a few options in terms of looking for yield while staying in broad indexes. They can apply a more targeted approach to sectors that are famous for being high yielders or they can look internationally.
Surprisingly, there are a number of countries that have benchmarks with incredible yields. There are actually several ETFs tracking countries that have payouts in excess of 5%.
In other words, there are some nations out there that see their main benchmarks paying out levels that are more than double the S&P 500 index. For this reason it could be a good idea to look abroad for payouts while still gaining exposure to a wide basket of companies (see These 2 ETFs Are Up More than 140% YTD).
For these investors, we have highlighted three country ETFs below that pay out shockingly high yields on a regular basis. Many have likely overlooked these nations as yield destinations, but hopefully the analysis below will help give investors a few new ideas for regions that are still sporting truly impressive yields with broad market funds:
iShares MSCI-Belgium ETF (EWK) - annual dividend 5.7%
Surprisingly, the tiny nation of Belgium is actually a popular yield spot for investors. The country’s main ETF, EWK, pays out a robust 5.7% on an annual basis by tracking the MSCI Belgium Investable Market Index.
This benchmark produces a fund that charges investors 52 basis points a year in fees, although it does see low levels of assets-- $25 million—yet volume is pretty good at 57,000 shares a day. This suggests that total costs shouldn’t be too bad in this fund and that bid ask spreads will not reach into intolerable levels (see Three Forgotten Ways to Play Europe with ETFs).
A closer look at some of the fund’s components should probably shed some light on why the fund is such a high yielder as Am-Bev (ABV) takes the top spot at a whopping 27% of assets. Beyond this hefty allocation, financials, basic materials, and telecoms take the rest of the top four, suggesting a heavy tilt to traditionally high yielding segments.
Additionally, investors should note that large caps comprise the majority of the fund, while growth securities do account for about 40% of assets. Still, this has proven to not be such a big deal as the holdings are almost exclusively in a couple high yielding sectors as low yielders like technology only account for a small portion of the total assets in the fund.
iShares MSCI New Zealand Index Fund (ENZL) - annual dividend of 6.9%
A nation that is often overlooked from an investment perspective is New Zealand, as the small island country is overshadowed by the much larger market of Australia. However, New Zealand could still be a great pick for investors thanks to the high yield of its main ETF, ENZL.
The product tracks the MSCI new Zealand Investable Market Index, giving investors exposure to two dozen New Zealand firms while charging investors 51 basis points a year in fees. While the AUM is impressive at $100 million, trading volumes are relatively light, although the real focus of the fund should be the nearly 7% yield (read The Five Minute Guide to New Zealand ETF Investing).
Much like its Belgian counterpart, this fund is heavily concentrated in a few securities although they are in traditional high yield segments as well. For ENZL, the focus is on telecoms, basic materials, and consumer stocks, although industrials, utilities and real estate all make up at least 10% of assets as well.
Investors should also note that Telecom Corp of New Zealand and Fletcher building both make up over 15% of the portfolio suggesting a heavy dependence on both of these firms. This also gives the fund a focus on large cap blend stocks which are well-known for their high yields, suggesting that this ETF will probably have a high dividend focus for years to come.
iShares MSCI Spain Index Fund (EWP) – annual dividend of 5.9%
Although Spain might not traditionally be the location that investors think of for high yields, EWP is a top fund for payouts with a yield approaching six percent a year. Clearly, the fund’s incredible loss over the past one year period—down nearly 18% in the time frame—has helped to boost the dividend yield for EWP, but the focus on the MSCI Spain Index Fund has also assisted this ETF in being a great yield destination.
That is because this benchmark offers exposure to just over two dozen firms including over 40% in financials, 17% in telecoms, and 12% in utilities. Obviously, these are some usual hideouts for high dividend payers, and this appears to be no different in the case of Spain (Read Spain ETF: Here We Go Again).
Furthermore, since the fund is so heavily concentrated in the underperforming financials market, investors have likely seen many of these securities sport truly impressive payouts, although it should be noted that if the market turns around these yields will probably decline back to more normal levels.
Nevertheless, the fund is easily the most popular and liquid fund of the three on the list with over $185 million in AUM and more than half a million in shares changing hands every day. The expense ratio on this fund is also in line with others on the list coming at 52 basis points a year.
Bottom Line
Clearly, all three of these products are relatively unloved by U.S. investors despite the ongoing search for yield. Any of the three—while they each have their own risks—could make for interesting choices for yield starved investors, and especially for those seeking some more international diversification in this uncertain market climate, while still tapping into a broad market approach.
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Follow @Eric Dutram on Twitter
Author is long ENZL.
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