ETFs for Income
June 15th 2012 at 9:44am by Tom Lydon
Boosting income is a high priority for many investors as current market conditions are uncertain at best, and interest rates are low to negative. A portfolio of income yielding exchange traded funds is a strategy that many investors are implementing.
“As you might guess, the strategy calls for investing in a mix of traditional income-producing assets such as dividend-paying stocks, preferred stocks, short-term bonds, intermediate-term long-term bonds, and international bonds, along with a mix of assets that come with credit risk such as high-yield bonds and emerging market bond,” Robert Powell for MarketWatch wrote.
Morningstar researchers have created the efficient income portfolio that is meant to appeal to investors that are not getting enough yield from their classic 60% stock/40% bond portfolio. Real interest rates are low to negative, giving investors no choice but to move into income-yielding investments to get return on their capital. [Multi Asset ETFs See Top Inflows]
Morningstar also developed an index to help prove their strategy will work. The Morningstar Multi-Asset High Income index is designed to deliver a high level of current income, consists of several exchange-traded funds that collectively target equity (20%), fixed income (60%) and alternative income sources (20%), reports Powell. [High Yield ETFs Go Global]
An income efficient strategy is intended to help investors earn a higher and steady stream of income without touching any principal. The following ETFs cater to such an approach:
- iShares Morningstar Multi-Asset Income Index Fund (NYSEArca: IYLD) The ETF has current yield of 3.73% and its net asset value (NAV) has been floating around $25, with an expense ratio of 0.6%
- SPDR SSgA Income Allocation ETF (NYSEArca: INKM) This ETF has a current yield of 4.03% and its NAV has been floating around its offer price of $30, with an expense ratio of 0.7%. [State Street Rolls Out First Active ETFs]
- Guggenheim Multi-Asset Income Fund (NYSEArca: CVY) Yields 5.11% and has an expense ratio of 0.6%. The fund is made up of 150 securities that includes U.S.-listed stocks, REITs, MLPs, closed–end funds, Canadian royalty trusts and preferred stocks.
- Arrow Dow Jones Global Yield ETF (NYSEArca: GYLD) This ETF fund is trading about 5% below its launch price in May of $25. The ETF, which has an expense ratio of 0.75%, is estimated to have a current yield of 8.7% annualized.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.