Over the past several years, interest in ETFs that offer exposure to high yielding asset classes has surged. From dividend-paying stocks and MLPs to junk bonds and emerging market debt, investor dollars have consistently flown towards assets that offer the potential to capture meaningful current returns. In addition to the ETFs that target these asset classes individually, there are now a number of funds that cover multiple types of high yielding securities, delivering a more broadly-based basket of securities that can lead to attractive dividend yields and low volatility. Below, we profile three such ETFs [see also 12 High-Yielding Commodities For 2012]:
iShares Morningstar Multi-Asset Income Index Fund (IYLD)
This ETF seeks to replicate the Morningstar Multi-Asset High Income Index, a benchmark that includes stocks, bonds, and REITs. IYLD achieves its objective by investing in other iShares ETFs; the largest individual allocation is the High Yield Corporate Bond Fund (HYG) at about 20% of total holdings. Other big allocations include the Barclays 20+ Year Treasury Bond Fund (TLT) and the JP Morgan Emerging Markets Bond Fund (EMB), both of which represent about 15% of the total portfolio.
Though IYLD is tilted towards U.S. stocks and bonds, it does include some meaningful exposure to international markets as well. The breakdown by asset class is as follows:
Domestic Bonds: 45%
Domestic Stocks: 30%
International Bonds: 15%
Domestic Real Estate: 5%
International Stocks: 5%
IYLD charges an all-in expense ratio of 60 basis points, and recently had a 30-day SEC yield of about 5.2%.
SPDR SSgA Income Allocation ETF (INKM)
This ETF, which is actively managed, is one of the more recent additions to the lineup. INKM seeks to deliver total return by focusing on income and yield-generating asset classes. The INKM portfolio consists of ETFs covering a wide range of asset classes, including dividend paying U.S. stocks (SDY makes up about 20% of holdings), long term corporate bonds (through LWC), junk bonds (JNK), and even long-term Treasuries (TLO). The portfolio doesn’t stop there; INKM also includes domestic and international REITs, preferred stock, Build America Bonds, and dividend paying stocks from Europe and emerging markets as well.
From an asset class perspective, INKM breaks down as follows:
Investment Grade Bonds: 31%
Global Real Estate: 9%
High Yield Bonds: 9%
Hybrids (incl. preferred stock): 8%
INKM is a bit pricey with an expense ratio of 0.70%. This ETF recently had a 30-day SEC yield in the neighborhood of 4.3%
ArrowShares Dow Jones Global Yield ETF (GYLD)
This ETF seeks to replicate the Dow Jones Global Composite Index, a benchmark that includes five primary asset classes in roughly equivalent allocations. Unlike IYLD and INKM, this product is not structured as an ETF-of-ETFs; the underlying holdings are individual stocks and bonds, which allows greater flexibility in picking out the highest yielding securities. The GYLD portfolio consists of:
Global Corporate Debt: 20%
Global Stocks (20%)
Global Real Estate (21%)
Sovereign Debt (19%)
Alternatives, including royalty income trusts and MLPs (21%)
Each of these asset class allocations includes about 30 individual securities, resulting in a portfolio that is extremely balanced. It’s worth noting that because the allocation to MLPs falls below 25%, GYLD steers clear of the issues that can cause products such as AMLP and MLPA to accrue tax liabilities when the underlying securities appreciate that can eat into returns [for more ETF insights, sign up for the free ETFdb newsletter].
GYLD is the most expensive of the ETFs profiled here at 0.75% annually, but also features by far the highest yield opportunity. Recently, the 30-day SEC yield on this product was about 7.7%.
Disclosure: No positions at time of writing.