Enjoying solid current income has become really tough in the current rock-bottom yield environment. The key reason is meager interest rates from global government bonds. The Fed had cut rates to zero last March and launched QE measures to fight the coronavirus-led slowdown.
The situation is almost the same in other countries with the likes of European Central Bank (ECB), Bank of Japan (BoJ) and Bank of England (BoE) following extremely low rates and bond buying programs. Several emerging economies have also been following an ultra-easy monetary policy. The ECB and BoJ, in fact, have a negative rate policy in place.
As of Jan 29, 2021, the benchmark U.S. treasury yield was 1.11% while the real benchmark yield was negative 1.02%. Real yields have been negative for all the maturities’ periods including 5 year, 7 year, 10 year, 20 year and 30 year.
How to Deal With Low/Negative Yield?
One solution to deal with record-low interest rates could be investing in securities that still offer sizable and benchmark-beating yields. Last year, the coronavirus outbreak had made that difficult for many companies as those had cut or halted dividends. Many high-yielding dividend stocks had witnessed awful equity returns in mid-2020. But markets started recovering from late-2020 on vaccine hopes. SPDR S&P 500 ETF Trust SPY added 12.1% in the past three months.
In such a scenario, investors may be interested in securities that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the easy ways to ride out the volatile times. High-yielding ETFs also provide investors avenues to make up for capital losses, if that happens at all.
Below we highlight a few ETFs that offer at least 6% yields and have offered a decent price performance so far this year. These ETFs do not necessarily hail from the equity sector. They are a mix of asset classes. The options are as follows.
GraniteShares US High Income ETF HIPS – Yield 9.53%; up 0.8% YTD
The underlying TFMS HIPS 300 Index is constructed to capture 300 high-income securities, pass-through structures. Currently, the fund has exposure to Closed-End Funds (55.31%), BDCs (14.95%), REITs (14.83%) and energy production and energy transportation & processing companies and energy-related companies (14.58%). The fund holds 0.33% in the form of cash.
The fund is historically one of the highest-yielding ETFs in the U.S. market. The fund has maintained an uninterrupted 10.75 cents per/share monthly distribution for nearly 6 years.Its expense ratio is 3.19%.
Trend Aggregation Dividend Stock ETF TADS – Yield 9.33%; Up 0.8% YTD
This ETF is active and does not track a benchmark. The fund looks to employ a tactical approach to invest in income-producing U.S. equity securities and ETFs. Under normal market conditions, the fund will invest in income producing equity securities. The adviser sells short securities that it believes are overvalued and covers (buys back) them when it believes they have reached their target price or that more compelling short sale opportunities are available. Its expense ratio is 1.87% annually.
Global X SuperDividend ETF SDIV – Yield 7.84%; Up 0.8% YTD
The 101-stock fund invests in 100 of the highest dividend-yielding equity securities in the world. United States (24.8%) holds the top spot in the fund, followed by 9.6% in South Africa, 7.7% in Russia and 7.7% in China. Real Estate (29.7%), Financials (18.3%), Energy (14.5%) and Materials (14.1%) are the top four sectors of the fund.
Global X SuperDividend U.S. ETF DIV – Yield 7.54%; Up 5.5% YTD
The 42-stock fund invests in 50 of the highest dividend-yielding equity securities in the United States. Consumer Staples (23.9%), Real Estate (21.1%), Energy (20.7%) and Industrials (11.3%) are the top sectors of the fund. DIV charges 46 bps in fees (read: 5 Market-Beating Dividend ETFs of 2020).
Nationwide Risk-Managed Income ETF (NUSI) – Yield 7.65%; up 0.64% YTD
This ETF is active and does not track a benchmark. The fund acts asan income solution that offers investors a measure of downside protection in falling markets and potential for upside participation in rising markets. The fund charges 68 bps in fees.
First Trust Dow Jones Global Select Dividend Index FGD – Yield 6.10%; Up 1.19% YTD
The underlying Dow Jones Global Select Dividend Index is an indicated annual dividend yield weighted index of 100 stocks selected from the developed-market portion of the Dow Jones World Index. It charges 59 bps in fees (see all Broad Developed World ETFs here).
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