No longer is an investor’s search for yield confined to stocks and U.S. government bonds. The exchange traded products industry has helped drive the changing landscape of income investing by offering a growing number of income-generating instruments, many of which have unique themes and concepts.
Income investors can now use ETFs to tap a plethora of high-yielding asset classes, including business development companies and preferred stocks. [Preferred Stock ETFs and Rising Rates]
ETF sponsors have also taken the concept of investing for income several steps further, by introducing products that offer investors exposure to themes they may not have thought about in the past. Multi-asset ETFs, or those ETFs that hold asset classes such as junk bonds, REITs and MLPs, are a good example. [Some High-Yield Dividend ETFs Off the Beaten Path]
Bank loans, covered calls and those funds that emphasize investing in low-debt, float-shrinking companies also stand among the ETFs investors can use to bolster a portfolio’s income.
In this slideshow, we examine 10 ETFs that are plays on the aforementioned income themes. The ETFs do not appear in order of preference or performance. Rather, the aim of this list is to highlight 10 ETFs, including some newer products, that offer unique ways of generating (and boosting) income.
Market Vectors Preferred Securities ex-Financials ETF (NYSEArca: PFXF)
12-Month Yield: 6.33%
AUM: $138.1 million
Comment: Preferred stocks are a type of hybrid security that exhibit the characteristics of equity and bond instruments. Preferred share dividends take precedent over common share dividends but fall below bonds in a company’s debt obligation hierarchy. As many investors have noticed, this class of stocks provides high yields, but unlike regular stocks, the dividends are fixed, so investors can rely on a relatively stable source of income. Unlike other preferred ETFs, which are heavily allocated to the financial sector, PFXF cuts out financial stock exposure.
Guggenheim Multi-Asset Income ETF (NYSEArca: CVY)
12-Month Yield: 5.35%
AUM: $1.16 billion
Comment: Multi-asset income ETFs, like the name suggests, include a broad basket of yield producing assets. This multi-asset approach has also provided a investors with a diversified approach to income investments. As one asset class slowed, other areas would take the lead. This type of fund is typically tactical in nature as the portfolio can shift assets into equities, fixed income, and even alternative investments depending on the market.
First Trust Multi-Asset Diversified Income Fund (Nasdaq: MDIV)
12-Month Yield: 5.84%
AUM: $517.5 million
Comment: MDIV is similar to CVY, except the First Trust offering tries to follow set weighting scheme, with common stocks an depositary receipts at 25%, real estate investment trusts 20%, preferred securities 20%, master limited partnerships 20% and high-yield corporate bond ETFs 15%.
First Trust International Multi-Asset Diversified Income Fund (Nasdaq: YDIV)
30-day SEC Yield: 4.78%
AUM: $5.2 million
Comment: YDIV is relatively new as it began trading on August 22. YDIV also invests in dividend stocks, non-U.S. infrastructure firms and a non-U.S. junk bond ETF. Dividend equities comprise a quarter of the index while REITs, infrastructure companies and preferred stocks each account for 20% with the bond ETF getting an allocation of 15%. However, YDIV will include international holdings as an added diversifier. [First Trust Rolls Out Global Multi-Asset ETF]
YieldShares High Income ETF (NYSEArca: YYY)
12-Month Yield: 4.13%
AUM: $11.5 million
Comment: YYY tracks 30 of the highest ranked closed-end funds by the ISE based on fund yield, discount to net asset value and liquidity. CEFs are publicly traded companies that raised a fixed amount of capital through an initial public offering and then are listed and traded like a stock on an exchange.
First Trust Tactical High Yield ETF (Nasdaq: HYLS)
30-day SEC Yield: 4.44%
AUM: $82 million
Comment: The Tactical High Yield ETF is actively managed and primarily tries to provide current income through high yield debt securities rated below investment grade. Essentially, HYLS serves as an active version of a high-yield, junk bond ETF position.
PowerShares Senior Loan Portfolio (NYSEArca: BKLN)
12-Month Yield: 4.47%
AUM: $6.1 billion
Comment: Senior floating-rate bank loans are a type of variable-rate, senior secured debt instruments issued by below-investment-grade companies. The bank loans have a variable rate that adjusts every 30-90 days and are set at a specific level above LIBOR – the duration of a bank-loan fund is near zero. Consequently, BKLN has been a popular bond ETF this year among investors who sought out high yields but were wary about rising interest rates. [Bank Loan ETFs for Yield and Rising Rate Hedge]
SPDR Blackstone/GSO Senior Loan ETF (NYSEArca: SRLN)
30-day SEC Yield: 2.99%
AUM: $562.2 million
Comment: SRLN started trading in April and was the first actively managed senior loan ETF to hit the market. First Trust also came out with the actively managed First Trust Senior Loan Fund (Nasdaq: FTSL) a month later.
Horizons S&P 500 Covered Call ETF (NYSEArca: HSPX)
30-day SEC yield: 0.426%
AUM: $21.9 million
Comment: By utilizing a covered call strategy, an investor who owns a stock sells call options, and collects the income from the premiums paid by the buyer of the option. Covered call writing is a method for generating additional income from a stock portfolio. It has been used to enhance yield while reducing volatility. HSPX is Horizons ETFs’ first fund to list on the U.S. exchange. The ETF began trading in June and competes against the larger PowerShares S&P 500 BuyWrite Portfolio (NYSEArca: PBP). [Covered Call ETFs Boost and Diversify Income Portfolios]
Market Vectors BDC Income ETF (NYSEArca: BIZD)
30-day SEC yield: 7.37%
AUM: $23.1 million
Comment: Business development companies can provide a robust yield boost to an income-oriented investment portfolio even in a rising rate environment. BDCs are affected by the internal health of the U.S. economy, and interest rates usually rise with an improving economy. The companies have also structured a majority of their assets into floating-rate investments. [Business Development Company ETFs Generate 7% Yields]