The evolution of the exchange traded funds industry has brought with it an increasingly wide range of options for income investors. Long gone are the days when investors were limited to straight equity-based dividend and prosaic bond funds.
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.
Last year, we examined some unique ETF sources of yield and by popular demand, we are revisiting that theme with some established and some products aimed at boosting a portfolio’s income potential.
The following ETFs do not appear in order of preference or performance. Rather, the aim of this list is to highlight some ETFs that offer unique ways of generating (and boosting) income. Let’s start with the…
Arrow Dow Jones Global Yield ETF (NYSEArca: GYLD)
30-day SEC Yield: 6.38%
Comment: GYLD can be best described as a multi-asset ETF focusing on five asset classes: Global corporate bonds, global sovereign debt, global stocks, global REITs and global alternative investments. The ETF takes a near equal-weight approach to each group with allocations ranging from 19% for global alts to almost 20.6% for sovereign debt.
There is no need to do a double-take regarding GYLD’s tempting 6.38% yield. At the end of the third quarter, the yields on the five asset classes held by the ETF ranged from 5.34% for global sovereign debt to 10.9% for alts, according to issuer data.
Market Vectors Fallen Angel High Yield Bond ETF (NYSEArca: ANGL)
30-day SEC Yield: 4.66%
Comment: The combination of decent-by-comparison credit profiles and their cast aside status helps make fallen angels a potentially potent value proposition. Said another way, ANGL’s holdings were once investment-grade bonds that lost that designation. However, fallen angels have also displayed a tendency to return to investment-graded faster than bonds issued with junk ratings, giving this ETF solid capital appreciation potential.
Global X SuperIncome Preferred ETF (NYSEArca: SPFF)
30-day SEC Yield: 6.92%
Comment: With 10-year Treasury yields tumbling this year, investors have poured into rate-sensitive preferred stock ETFs, including SPFF. The ETF topped $100 million in assets under management in June and has since grown by 57%.
Horizons S&P 500 Covered Call ETF (NYSEArca: HSPX)
Trailing 12-month yield: 3.55%
Comment: HSPX features some important traits, not the least of which is a monthly dividend and a yield that is well in excess of the S&P 500 and 10-year Treasuries. Most importantly, the ETF proved durable during the recent market downturn, cementing its status as an ideal income-generating tool during volatile market environments. [Covered Call ETFs for Defense]
PowerShares Global Listed Private Equity Portfolio (NYSEArca: PSP)
Trailing 12-month yield: 8.38%
Comment: An ETF mimicking private equity strategies might appear to be too much of a niche concept, but that criticism does not hold water when noting that PSP has been around for eight years and is flirting with $500 million in assets under management. In fact, investors have allocated over $61 million to the ETF this year.
The fund holds includes securities, ADRs and GDRs of 40 to 75 private equity companies, including business development companies (BDCs), master limited partnerships (MLPs) and related entities. [ETFs With Huge Yields]
ProShares Global listed Private Equity ETF (BATS: PEX)
30-day SEC Yield: 5.14%
Comment: PEX is a newer, but credible rival to PSP. PEX, which tracks the LPX Direct Listed Private Equity Index, features international exposure, including a combined 42% weight to European and British companies. That says investors should be mindful of the ETF’s currency exposure as nearly 56% of the fund’s holdings are priced in currencies other than the U.S. dollar.
Deutsche X-Trackers Municipal Infrastructure Revenue Bond Fund (NYSEArca: RVNU)
30-day SEC Yield: 2.86%
Comment: On the surface, a municipal bond ETF may not fit the bill as a “unique” source of ETF yield. However, RVNU’s approach to the municipal bond space is in fact unique.
The recent swings in the munis market are attributed to the high-profile bankruptcy filings in Detroit, Michigan and Stockton, California, along with financial problems in Puerto Rico. Specifically, general-obligation bonds, which are backed by credit and the taxing ability of the issuing municipality, are under increased scrutiny as some cities fail to generate enough tax revenue to cover their debt. [A Different Way to Muni ETFs]
RVNU skirts that problem by focusing solely on bonds that fund federal, state and local infrastructure projects such as water and sewer systems, public power systems, toll roads, bridges, tunnels, and many other public use projects where the interest and principal repayments are generated from dedicated revenue sources.
ETF Trends editorial team contributed to this post.