The recent flows into exchange traded funds have followed the same general pattern seen in open-ended funds, with multi-asset investments topping the list. The top Morningstar categories that have seen inflows are from intermediate and high-yield bonds, allocation funds and dividend-focused investments.
According to the ETF Industry Association, fixed income led all categories for May with $8.9 billion in net inflows bringing the year-to-date total to over $30.2 billion. Allocation funds are not as prolific as bond ETFs, however, the recent interest in this area of the market has led to more launches of such products. [Arrow Funds Target Global Yield for ETF Debut]
Patricia Oey for Morningstar reports that multi-asset ETFs are one-stop funds for diversified income exposure, and seek to address investors’ need for higher and potentially more stable income. The funds invest in “income” asset classes such as REITs, MLPs, emerging market debt and high-yield bonds. [Best Dividend ETFs]
“While these funds (or their underlying indexes) have a track record of a only few years, so far, they have generally provided higher income and slightly higher risk-adjusted returns when compared to the average of their respective Morningstar categories. However, it is important to note that REITs, MLPs, high-yield debt, as well as U.S. equities, all declined more than 30% in 2008, which suggests that these assets may not provide diversification “benefits” when you need it most,” Oey wrote. [High Yield ETFs got Global]
Other advantages of these funds is that they can help reduce interest rate risk, the volatility of value stocks and the credit risk of higher yielding bonds. [Three Dividend ETFs for Investors Aiming High]
Various multi-asset ETFs:
- Guggenheim Multi-Asset Income ETF (NYSEArca: CVY) Yields 5.19%; The index has a 50:50 portfolio of U.S. equities and a mix of foreign-equity ADRs, REITs, MLPs, Canadian royalty trusts, closed-end funds, and preferred stocks.
- Guggenheim International Multi-Asset Income (NYSEArca: HGI) Yields 4.95%; This ETF is somewhat more volatile than the S&P 500 but over the past five years has provided better risk-adjusted returns, with a five-year Sortino ratio of 0.09 versus 0.00 for the S&P 500. It has also provided better-than-average risk-adjusted returns relative to its Morningstar large-value category.
- iShares Morningstar Multi-Asset Income (NYSEArca: IYLD) This ETF is considered a conservative-allocation fund because of its targeted 60% weighting in fixed-income securities. Other top exposures include preferred stocks (15%), U.S.-dollar-denominated emerging-markets bonds (15%), and long-term Treasuries (15%).
- Arrow Dow Jones Global Yield ETF (NYSEArca: GYLD) yields 8.62%; The index is weighted into subindexes of five different asset classes–global equity, global real estate, global corporate debt, global sovereign debt, and global alternative. The ETF is expected to track similar to broad U.S. equity indices.
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.