With the number of dividend exchange traded funds on the rise, issuers that are new to the game are taking increasingly refined approaches in an effort to catch the eyes of income investors.
The new Master Income ETF (NYSEArca: HIPS), which debuted Thursday courtesy of Master Shares and Trust & Fiduciary Management Services is one example of the new breed of income ETFs. Trust & Fiduciary Management Services, a Boston-based registered investment advisor, is the provider of the High Income Pass-Through Securities (HIPS) 300 index upon which the ETF is based.
Rather than focusing on traditional common dividend stocks, HIPS emphasizes pass-through securities, or those companies that due to favorable tax treatment are obligated to distribute significant percentages of profit in the form of dividends. Think master limited partnerships (MLPs), real estate investment trusts (REITs), business development companies (BDCs) and royalty trusts, among other asset classes. [BDC ETFs for Income Investors]
The Investment Advisor to the Master Income ETF is Exchange Traded Concepts of New York. The lead market maker is Cantor Fitzgerald, according to a statement.
The new ETF, which charges 0.87% per year and will pay its dividend on a monthly basis, is home to familiar names such as Annaly Capital Management (NYSE: NLY), Carlyle Group (NYSE: CG), Linn Energy (NasdaqGS: LINE) and Ventas (NYSE: VTR).
HIPS’ debut could prove to be well-timed. U.S.-listed MLP ETFs hold over $22 billion in combined assets, double the amount held just three years ago and with interest rates still low by historical standards, income investors have flocked to REIT ETFs as well. For example, the Vanguard REIT ETF (NYSEArca: VNQ) was one of the top 10 asset-gathering ETFs of any type last year.
REITs provide a liquid alternative to owning physical commercial real estate properties. REITs investments also share similar attributes with stocks and bonds. Since REITs are required to distribute at least 90% of their income from rent payments to investors, these real estate investments can generate attractive yields. [REIT ETFs Keep Looking Solid]
According to Wilshire Associates, BDCs have an average yield of over 10%, compared to 3.8% for real estate investment trusts and utilities or the 2% for the S&P 500 index, writes Jeff Benjamin for InvestmentNews.
Business development companies, or BDCs, are closed-end investment companies that invest in debt and equity of small public and privately held companies. Robert Waid, managing director at Wilshire Analytics, points out that BDCs offer attractive income opportunities since they required to pay out 90% of income in form of dividends.