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Unique Yield ETFs to Keep Skin in the Game

Don Dion

NEW YORK (TheStreet) -- As China struggles to stick to its growth trajectory and fears of Europe's sovereign debt crisis make their way back into the picture, investors are likely beginning to question the longevity of the market's early-year rally. This recent bout of turmoil may persist in the coming weeks and lead some to embrace the, "sell in May and go away" mantra, but I feel that exiting the market at this time is not the best idea.
Rather, as turbulence persists, investors may want to consider revisiting some overlooked or unique yield-focused exchange traded products.

Dividend-paying equities and high-yielding corners of the fixed-income universe are two options that will allow individuals to keep some skin in the game, while maintaining an element of protection against near-term upheavals. They have admittedly struggled to hold up against broad funds like the SPDR S&P 500 ETF SPY and the SPDR Dow Jones Industrial Average Index ETF DIA in 2012, as bulls have had their hooves pressed firmly on the gas pedal.
However, dividend ETFs like the iShares Dow Jones Select Dividend Index Fund DVY and the Vanguard Dividend Achievers ETF VIG have managed to stay in positive territory on a year-to-date basis. As the more aggressively structured of the two, the VIG has been the clear leader, returning more than 5.5% during this period. DVY's year-to-date performance fails to break the 4% barrier.
Either VIG or DVY are worth considering in the event that the clouds continue to gather over the global macroeconomic landscape. However, those who feel that any upheaval will be short-lived, and will ultimately pave the way to another steep leg higher, may want to direct their attention toward the Vanguard-branded option. With some of the largest slices of its portfolio dedicated to industrials and energy, the fund is well-suited for bullish market conditions.
While funds like DVY and VIG may satisfy a fearful investor's appetite for equities, high-yielding options like dollar-denominated emerging market bonds may offer an attractive mix of risk and safety for fixed income-hungry individuals, or those looking to adjust their developed market exposure.
In addition to allowing investors to target their favorite emerging nations without having to venture into equity markets, the risks of these debt instruments are further offset thanks to the fact that they are backed by the U.S. dollar. This is a welcomed relief for those who may be wary of the challenges associated with developing currencies.
In the past, investors have turned to sovereign debt-tracking funds like the iShares JPMorgan USD Emerging Market Bond ETF EMB and the PowerShares Emerging Markets Sovereign Debt Portfolio PCY to get their fill of dollar-denominated, emerging market debt. However, in recent months, this pool of funds has expanded and evolved.
Thanks to the launch of funds like the iShares Emerging Markets High-Yield Bond Fund EMHY , it is possible to take aim at dollar-backed high-yielding corporate emerging-market bonds as well.
The popularity of this particular corner of the fixed-income universe has taken off in recent months. This week The Wall Street Journal noted that emerging market dollar-denominated corporate bond issuances have jumped 40% in the first quarter of 2012 compared to the previous year.
The niche has gained traction, but I do not encourage investors to dive into a fund like EMHY at this time. Given its youth, the fund will likely face hurdles on the road ahead. EMB and PCY are still the best bets for those looking to venture into the developing world in search of high-yielding debt.
A Fair Market Value Update
Written by Don Dion in Williamstown, Mass.