The Global X SuperDividend Alternatives ETF (NasdaqGM: ALTY) can help exchange traded fund investors diversify away from traditional assets and generate attractive yields along the way.
ALTY tries to reflect the performance of the Indxx SuperDividend Alternatives Index, which is comprised of a group of high-yielding alternative assets like master limited partnerships, infrastructure companies, real estate investment trusts, mortgage REITs, emerging market debt, business development companies, private equity, asset and mortgage backed securities and option-writing strategies.
Specifically, the ETF includes a 31.1% tilt toward REITs, along with 20.1% BDCs and private equity, 11.4% covered call strategies, 11.3% carry trade and EM debt, 11.0% mortgage and asset backed securities, 8.4% infrastructure and 6.8% MLPs.
Alternative investments are seen as a portfolio diversifier because of their low correlation to standard assets. These alternative assets may zig as a traditional portfolio of stocks and bonds zag, potentially providing investors with another layer of diversification to help smooth out volatility in the markets.
ALTY has more or less kept up with the broader equities market during the recent selling pressure. Year-to-date, the alternative dividend ETF was down 4.3% while the S&P 500 index was 4.2% lower.
Alternative ETF Assets
Moreover, ALTY’s portfolio of alternative assets generate attractive yields. The ETF shows a 11.8% 30-day SEC yield and income-dependent investors may enjoy a steady monthly distribution.
However, the portfolio is still exposed to some specific risks. For instance, as interest rates rise, REITs’ interest payments also go up, so REITs have less cash available for dividends for equity investors. An extended low oil environment may also pressure MLPs as oil producers cut back on production, which may reduce the services required of energy infrastructure.
Potential investors should also be aware that ALTY is still small with $1.3 million in assets under management and has an average trading volume of about 1,750 shares, according to Morningstar data. Consequently, investors should utilize limit orders to better execute trades.
Moreover, As ALTY holds multiple asset classes across multiple funds, the new ETF’s expense ratio is 3.03%, which is high by the standards of most actively managed mutual funds, let alone passively managed ETFs. Most of the additional costs come from the 2.28% acquired fund fees and expenses, which may be partially a result of the BDC structure. [Making Sense of Acquired Fund Fees in BDC ETFs]
Global X SuperDividend Alternatives ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.