Multi-Asset ETFs For Yield and Stability
August 23rd, 2012 at 6:09am by Tom Lydon
Multi asset exchange traded funds are proving they are good tools for investors that are seeking income from their investments with the prospect of long term appreciation. ETFs also help mitigate some risk, due to the built-in diversification that comes with investing in a basket of stocks.
“Multi-asset ETFs aim to provide a high current income with long-term capital appreciation by investing across different asset classes. These funds invest in diverse asset classes such as investment grade and high yield bonds, domestic stocks, emerging markets, preferred stocks, REITs and MLPs,” Neena Mishram wrote on Zacks. [Multi-Asset ETFs]
Multi-asset ETFs usually include characteristics such as a high yield of at least 5%, long term capital appreciation and capital preservation through diversification and lowered volatility. Patricia Oey for Morningstar reports that the diversification benefit from the multiasset approach can help reduce interest-rate risk associated with long-term bonds, market sensitivity of value stocks, and credit risk of high-yield bonds. [Three ETFs to Safeguard a Portfolio]
The following ETFs offer higher yields and stability:
- Guggenheim Multi-Asset Income ETF (NYSEArca: CVY) The fund has a yield of 5.28% and costs 0.60%. The fund is weighted heavily in financials, and energy, and the focus in on common stocks, with ADRs and MLPs rounding out the holdings.
- iShares Morningstar Multi-Asset Income Index Fund (NYSEarca:IYLD)This ETF has a high 20% weighting in a high-yield bond ETF. Other top exposures include preferred stocks (15%), U.S.-dollar-denominated emerging-markets bonds (15%), and long-term Treasuries (15%). The yield is around 5% and the expense ratio is 0.60%. [ETF Chart of the Day: Multi Asset Income]
- SPDR SSgA Income Allocation ETF (NYSEArca: INKM) This is an ETF of ETFs, and currently holds 18 ETFs. The portfolio’s asset-weighted yield is about 4.5%, but the actual yield will be reduced by a portion of INKM’s 0.70% expense ratio. This ETF has a 35% targeted exposure to investment-grade bond, which should make INKM less volatile than CVY and HGI. Target exposures are equity (35%), investment-grade bond (35%), global real estate (10%), high-yield bonds (10%), and hybrids (10%). The fund is actively managed. [Multi Asset ETFs for the Long Term]
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.