ETF Alternatives for Last Week’s Hot Stocks

Buy high-yielding stocks and other picks through funds instead

    View All  

For those not so sure, your best bet is to buy the SPDR S&P Homebuilders ETF (NYSE:XHB), which has a 3.32% weighting in Pier 1. I like this fund because it’s a backdoor way to own PIR while also benefiting from the recent momentum homebuilders are experiencing. If you look at the entire portfolio, you’ll see that there are some great companies other than homebuilders, including Williams-Sonoma (NYSE:WSM) and Tempur-Pedic (NYSE:TPX).

Closed-End Funds

Also on Thursday, Lawrence Meyers spent some time discussing why investors should exit their bond investments and head to closed-end funds in search of yield. Meyers suggested three possibilities, with the most interesting being the NFJ Dividend, Interest & Premium Strategy Fund (NYSE:NFJ).

Managed by Allianz Global Investors, NFJ currently trades at a 5% discount to its net asset value. Approximately 75% of the portfolio is invested in dividend-paying stocks, while the remaining 25% goes into income-producing convertible securities. Morningstar only gives NFJ a two-star rating in part because of its parent company. You’ll want to take a really close look before buying.

For those looking for an ETF alternative, go with the PowerShares CEF Income Composite Portfolio (NYSE:PCEF), a fund-of-funds that invests in fixed-income securities and other high-yielding investments. The NFJ is one of the 124 holdings at 2.49%. Because PCEF invests in so many other funds, the actual expense ratio is estimated at 1.56%, which is extremely high. However, the SEC 30-day yield of 7.53% might help ease the pain.

Illinois Tool Works

For my final ETF alternative, I’ve chosen the Dividend Growth Investor’s Saturday recommendation of Illinois Tool Works (NYSE:ITW), an industrial conglomerate that has been paying dividends since 1933, not to mention increasing them every year for the past 49 years — warranting a nod as one of InvestorPlace‘s Dependable Dividend Stocks.

In addition to paying a consistent and growing dividend, ITW also repurchases its own shares. Over the past decade, Illinois Tool Works has reduced its share count by 22% to 483 million. I’m not a fan of share repurchases, but those that are will most definitely appreciate ITW.

The SPDR S&P Dividend ETF (NYSE:SDY) owns ITW at a weighting of 1.56%. Its 81 holdings seek to replicate the performance of the S&P High Yield Dividend Aristocrats Index. With a dividend yield of 3.02% and an expense ratio of 0.35%, SDY makes an excellent alternative to ITW.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2012/09/etf-alternatives-for-last-weeks-hot-stocks-sept-10-14/.

©2014 InvestorPlace Media, LLC

Comments are currently unavailable. Please check back soon.