A decent return on income-oriented capital is hard to come by these days, especially with long-term interest rates at record lows. Certainly, there’s not much income or yield being paid on cash, and many traditional dividend stocks and government bonds have been under constant pressure since the global recession slammed into the world’s collective economic shores. And though many income investments have mounted a comeback off of their August lows, picking the best of the best high-yield securities is nearly always a daunting task for investors.
One way to get an income portfolio exposed to some high-yield, high-performance securities is to use exchange-traded funds, or ETFs. These funds basically allow investors to buy a basket of similar kinds of securities (e.g., dividend stocks, corporate bonds, etc.) and to benefit from the general trends higher in those respective sectors. The universe of high-yield ETFs has grown mightily over the past several years, and that’s given income-hungry much more variety. Still, investors need to get familiar with the various income-oriented ETFs out there to really understand their choices.
The following are eight, great high-yield ETFs that have delivered both stellar year-to-date returns as well as some very nice yields (note: all price data is as of 10/26/10).
iShares Dow Jones Select Dividend Index (NYSE: DVY). This is one of those dividend-paying equity ETFs that provides exposure to some of the biggest and best corporate names out there. DVY is designed to deliver investment results that correspond generally to the price and yield performance of the Dow Jones Select Dividend index. That index is replete with stalwart dividend stocks such as Chevron (NYSE: CVX), Kimberly-Clark (NYSE: KMB) and McDonald’s (NYSE: MCD). Year-to-date, DVY is up 10.29% and has a yield of 3.48%.
iShares iBoxx $ Liquid Invest Grade Corp. Bond (NYSE: LQD). Investment-grade corporate bonds are a great high-yield investment, but until this ETF came around investors had to go about buying individual corporate bonds and/or incur the heavy expense of corporate bond mutual funds. Year-to-date LQD is up 8.09% with a yield of 4.62%. The top holdings in LQD include corporate bonds from AT&T (NYSE: T), BlackRock (NYSE: BLK), Citigroup (NYSE: C) and Goldman Sachs (NYSE: GS).
iShares Lehman 20+ Year Treasury Bond (NYSE: TLT). This fund provides exposure to the long end of the U.S. Treasury bond sector. That sector has been red hot in 2010, with a year-to-date performance of 13.1% and a yield of 4.63%. TLT basically holds a bevy of bonds contained in the Barclays Capital 20+ Year Treasury Bond Index, including long-term Treasury bonds of various coupon rates and maturities.
iShares S&P Global Telecommunications (NYSE: IXP). This sector high-yield fund allows investors to buy stocks in the S&P’s Global Telecommunications index. That index is made up of global telecom giants such as America Movil (NYSE: AMX), China Mobile (NYSE: CHL) and Deutsche Telekom (NYSE: DT). That sector is booming, with a year-to-date return of 8.32% and a yield of 4.98%.
|Ticker||ETF Name||3MOS Performance||YTD % Performance||Yield|
|DVY||iShares Dow Jones Select Dividend Index||6.37%||10.29%||3.48%|
|LQD||iShares iBoxx $ Liquid Invest Grade Corp. Bond||2.69%||8.09%||4.62%|
|TLT||iShares Lehman 20+ Year Treasury Bond||1.89%||13.10%||4.63%|
|IXP||iShares S&P Global Telecommunications||13.23%||8.32%||4.98%|
|PFF||iShares S&P U.S. Preferred Stock||1.75%||7.57%||6.94%|
|JNK||SPDR Lehman High Yield Bond||3.42%||4.77%||8.45%|
|DEM||WisdomTree Emerging Markets High Yield||14.99%||16.37%||4.47%|
|DGS||WisdomTree Emerging Markets Small Cap Div||19.06%||22.88%||3.42%|
iShares S&P U.S. Preferred Stock (NYSE: PFF). This ETF is pegged to stocks in the S&P U.S. Preferred Stock index, and that index includes corporate behemoths Bank of America (NYSE: BAC), Ford (NYSE:F) and JPMorgan Chase (NYSE: JPM). PFF is up 7.57% so far in 2010 with an outstanding yield of 6.94%. And while some of the common stocks in the financial sector have been pushed down of late, this high-yield preferred stock is more than holding its own for yield-oriented investors.
SPDR Lehman High Yield Bond (NYSE: JNK). The mere name “junk bonds” still has a negative connotation among investors, but it really shouldn’t. That’s because high-yield corporate bonds still offer investors good capital appreciation as well as a very attractive yield. JNK seeks performance results that correspond to the Barclays Capital High Yield Very Liquid index. This “junk bond” index ETF is up 4.77% so far in 2010, with a huge 8.45% yield. Some of the more well-known corporate names in this fund are American International Group (NYSE: AIG), Clear Channel (NYSE: CCO) and GMAC.
WisdomTree Emerging Markets High Yield (NYSE: DEM). Most investors know that emerging market stocks are all the rage right now, but what many don’t know is that these stocks are often very good high-yield plays. DEM is such a fund, and its year-to-date gains of 16.37% and yield of 4.47% confirms that thesis. Top three holdings in this fund include Banco do Brasil, Taiwan Semiconductor Manufacturing (NYSE: TSM) and Bank of China Ltd. H Shares.
WisdomTree Emerging Markets Small Cap Div (NYSE: DGS). Like DEM, sister fund DGS offers investors exposure to emerging markets, but this fund concentrates its holdings in small-cap sector. That sector has certainly been fruitful so far in 2010, as DGS is up 22.88% year to date with a respectable yield of 3.42%. This fund’s stock holdings aren’t household names, unless companies such as Corpbanca, Discount Investment and Dogan Sirketler Grubu can be called household names. However, this fund, along with the rest of the high-yield funds profiled here, certainly delivers what all income-investors want — outstanding price performance along with attractive yields.