geopolitical tensions in Ukraine and Iraq, and new threats from Portugal’s banking sector that are looming large across the globe.
In addition, economists reduced the growth outlook from 2.5% to 1.6% for this year, according to the recent survey by the National Association of Business Economics. Further, Treasury yields are declining since the start of the year despite the Fed tapering. In fact, yields on 10-year Treasuries have dropped from 3.00% at the start of the year to around 2.55% currently.
This has urged investors to look elsewhere in the ETF space for their current income. As such, they are showing great interest in products that pay outsized yields irrespective of the segments.
Investors should note that high dividend paying ETFs play a defensive role in a portfolio and can reduce volatility in turbulent times. Further, these products provide greater stability and safety thanks to their strong cash flow streams. While U.S. dividend ETFs have been popular over the past few months, the yield-hungry investors often overlook the products that do not include the top dividend paying companies but still offer robust yields.
Some of these funds could be illiquid and might not participate in the global stock rally but offer outsized payouts or sizable yields on a regular basis. Below, we have highlighted four ETFs with double-digits yields that could be the perfect choice for investors seeking higher income in the ultra-low rate environment while protecting the downside risk from market uncertainty. Yield on these products are clearly crushing the broad dividend space and the high yield bond world by wide margins (see: all the High-Yield/Junk Bond ETFs here).
Silver Shares Covered Call ETN (NYSEARCA:SLVO) – Yield: 16.63%
This ETN offers investors a safer way to play the precious metals market while receiving an excellent income flow. SLVO tracks the Credit Suisse NASDAQ Silver FLOWS 106 Index and employs a covered call strategy on a notional investment in iShares Silver Trust ETF (SLV).
Basically, the product will hold a notional long position in SLV while at the same time notionally sell out of the money call options on the position on a monthly basis. With this process, any premium received over the notional trading costs is paid out to investors. This approach does cap risk, but big gains are unlikely with this ETN. The product gained 6.7% in the year-to-date time frame, slightly higher than the gain of 6.2% for SLV and has higher dividend yield of 16.63% annually.
However, it is worth noting that this product has paltry volumes, which could result in higher bid/ask spreads and increased trading costs. This makes the note a bit pricey as its expense ratio already comes in at an elevated level of 0.65%. Further, since the product is structured as a note, it is exposed to the credit risk of the issuer.
iShares FTSE NAREIT Mortgage Plus Capped Index Fund (NYSEARCA:REM) – Yield: 13.52%
This is the most popular mortgage REIT ETF on the market with roughly $1.3 billion in AUM and nearly 1.2 million shares a day in average volume. The ETF provides exposure to the U.S. residential and commercial corner of the broad mortgage space by tracking the FTSE NAREIT All Mortgage Capped Index.
Holding 36 stocks in its basket, the product is heavily concentrated on the top two firms – Annaly Capital (NLY) and American Capital Agency (AGNC) – which collectively make up for nearly 29% share. Other securities hold less than 8% share. Despite the lack of large cap stocks, the fund delivered impressive returns of about 15% and yield of 13.52%. The ETF charges 48 bps in fees and expenses and has a Zacks Rank of 3 or ‘Hold’ rating with Medium risk outlook.
iShares Global Telecom ETF (NYSEARCA:IXP) – Yield: 11.59%
This ETF follows the S&P Global 1200 Telecommunications Sector Index, which provides global exposure to companies that provide telephone and Internet products, services, and technologies. The fund has amassed $430.4 million in its asset base while trades in a light volume of less than 50,000 shares a day. Expense ratio came in at 0.47% (read: A Comprehensive Guide to Telecom ETFs).
In total, the product holds 32 securities with largest allocations to the top two firms – Verizon (VZ) and AT&T (T) – with a combined 31% of total assets. In terms of industrial exposure, diversified telecom accounts for 69.2% of the total while wireless telecom takes the rest. IXP added 3.6% so far this year and has an excellent dividend yield 11.59%. It has a Zacks ETF Rank of 4 or ‘Sell’ rating with a ‘Medium’ risk outlook.
PowerShares Global Listed Private Equity ETF (NYSEARCA:PSP) – Yield: 11.27%
This fund provides exposure to the 64 global publicly listed private equity companies, including business development companies and other financial institutions or vehicles with the principal business of investing in and lending capital to privately held companies. This is done by tracking the Red Rocks Global Listed Private Equity Index.
The ETF is widely spread across individual securities while heavily skewed toward financial, as these make up for three-fourths of the portfolio. American firms dominate the fund’s return at 40.5% while United Kingdom (17.6%), France (8.1%) and Canada (6.4%) round off to the next three spots. The fund has $677.9 million in AUM and trades in average daily volume of 499,000 shares per day.
PSP is the high cost choice in the ETF space, charging 2.19% in fees per year from investors. However, it sports an impressive yield of 11.27%. It is worth noting that this asset class might perform worse than the broader market during periods of prolonged market turmoil. The ETF is up just 1.7% in the year-to-date time frame.
This article is brought to you courtesy of Sweta Killa.