With 10-year Treasury yields at a less-than-enticing 1.92% and cash equivalents offering even more pidly yields, investors remain forced to consider other income-generating options.
Exchange traded funds have made the hunt for yield less taxing and that includes multi-asset funds, which as the name implies, offer investors exposure to a variety of income-generating asset classes under the umbrella of one fund.
The iShares Morningstar Multi-Asset Income Index Fund (NYSEArca: IYLD) is one such fund. IYLD, now three years old and home to $285.5 million in assets under management, tries to reflect the performance of the Morningstar Multi-Asset High Income Index. An easy of quantifying IYLD is that it uses the increasingly popular ETF of ETFs approach. [A Look at ETFs of ETFs]
All 10 of the ETF’s non-cash holdings are other iShares ETFs, which span asset classes including U.S. corporate bonds, foreign and domestic dividend stocks, real estate investment trusts, emerging markets debt, preferred stocks and Treasurys.
IYLD allocates almost 20% of its weight to the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and 15.1% to the iShares Mortgage Real Estate Capped ETF (NYSEArca: REM). Other holdings include the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) and the iShares Core High Dividend ETF (NYSEArca: HDV). [Income ETFs for Retirement]
IYLD focuses on high current income. Consequently, the portfolio is slightly riskier, with a heavy emphasis on high-yield, junk bonds and mortgage-backed REITs. That means the fund could face headwinds in a rising rate environment due to its heavy exposure to rate-sensitive asset classes. For investors willing to take on that rate risk, IYLD has its perks.
IYLD “was set up and runs with a conservative portfolio to achieve returns. This ETF is a great option for income investors looking for yield across asset classes,” according to a Seeking Alpha post. “…if you are a believer that the Federal Reserve is not going to raise interest rates until September or December, then this probably an ETF worth looking at. However, just be aware that there is some interest rate risk here due to bond duration and quality.”
IYLD’s sensitivity to rising rates has been made evident. When 10-year yields spiked in 2013, the ETF gained just 0.4%. When those yields plunged in 2014, IYLD jumped 10.4%. The ETF’s 2013 volatility was also 330 basis points higher than last year.
The fund,which has a 30-day SEC yield of 5.98%, is up 3% this year.
iShares Morningstar Multi-Asset Income Index ETF
Tom Lydon’s clients own shares of HYG and LQD.