Investors may be able to find some real opportunity thanks to potential found a space ready for high yield. ETF Trends CEO Tom Lydon spoke with Yahoo Finance’s Akiko Fujita, during the “ETF Report” to focus in on how this dividend rebound could support high yield opportunities and the ETFs to track.
As Lydon explains, in this environment, finding yield has been a challenge. That in mind, more money has gone into fixed income ETFs this year — almost $150 million. In the search for yield, comfort can be found in high dividend yield ETFs, while investors may get some pretty good returns, even as the government buys back into the high yield marketplace, allowing for some appreciation as well.
Looking at some specific ETFs, Lydon notes how “Some of these high yield ETFs have indexes that they buy by the masses. The thing to do is avoid those underperforming companies or those that may be threatened, and their dividends may be at risk.”
To single these ETFs out, there’s the FlexShares High Yield Value-Scored Bond Index Fund (NYSEArca: HYGV), which focuses on value by pursuing the higher risk/return potential stocks. It also uses a scoring methodology to eliminate the bottom 10% of issuers, allowing the fund to perform liquidity assessment based on the issuer’s outstanding debt.
Lydon continues, “With this, HYGV can give a yield among those that are a little bit safer of over 6.5%, which, in this day and age, is really pretty attractive.”
Additionally, Lydon also highlights the ALPS Sector Dividend Dogs ETF (SDOG). SDOG provides high dividend exposure across all ten sectors of the market by selecting the five highest-yielding securities in each sector and equally weighting them. This provides diversification at both the stock and sector level and keeps from bringing overconcentration on any one stock.
Moving on to discuss rates, in regards to the possibility of significant inflows heading into equity as a result of fixed income, Lydon is sure it could happen. However, he does point out the sectors that have worked out well in this work-from-home environment, particularly the FAANG stocks.
“Information technology, healthcare, etc. have done tremendously well,” Lydon adds.
As far as what could come from the upcoming FOMC Meeting, Lydon doesn’t feel much is going to change from that. If anything, it may reveal there’s more of a disruption problem regarding certain sectors, as opposed to an issue with pricing. Real estate will also be a factor. However, housing appreciation in rural areas is on the uptick, but one can expect corresponding declines in cities.
Still, it comes down to expecting more of the same in the months to come. That in mind, equity markets, information technology, and healthcare are the areas that have upped their growth trajectory, leading to greater profitability.
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