In the current market environment, investors have very limited options to realize outsized yields. With interest rates so low they need to look at some esoteric options in order to earn high dividend yields. Long-term government bonds yield just 3.6 percent. The S&P 500 yields less than 2 percent. Even risky “junk bonds” yield a mere 6 percent in the aggregate as measured by the iShares High Yield Bond ETF (NYSEARCA:HYG).
With this in mind, I have put together a short list of ETFs that yield thirsty investors should consider. While I wouldn’t recommend comprising a portfolio of entirely these funds, I did have a completed portfolio in mind. Each of these funds is uncorrelated with one another and covers different asset classes. Furthermore, these funds all pay monthly dividends, which makes them suitable for those investors seeking regular dividend income.
The first is the Credit Suisse Gold Shares Covered Call ETN (OTCMKTS:GLDI). This fund tracks an index that holds gold futures and sells call options against these futures. Essentially, this means that the fund is selling the right to some of the upside in gold should the price rise. Investors get some exposure to the price of gold with a hefty dividend. Furthermore, if gold falls then this fund will fall as well, but it won’t fall as much. While this dividend varies according to gold’s volatility the fund has a trailing 12 percent yield, which is extremely high in this environment. On this surface, this seems like it is too good to be true — it is gold exposure with less downside than gold and with a huge dividend. The downside is that investors are selling a lot of the upside potential should the gold price rise. Since gold tends to rise very sharply in times of chaos, this means that the GLDI is not going to function as a gold substitute assuming gold spike in a safe haven scenario.
Furthermore, it fails to keep up with gold even if the price isn’t moving higher so quickly. For instance, this year even with dividends the GLDI has risen about 4.5 percent less than the SPDR Gold Trust (NYSEARCA:GLD), which is designed to track the spot price of gold. Nevertheless, GLDI can be a good way for investors to compliment other gold holdings in order to enhance their income.
Note that there is a similar fund for silver with the ticker SLVO. Everything I said about GLDI is true about SLVO except that SLVO has a trailing dividend yield of 16 percent given silver’s higher volatility.
The second is the Global X SuperDividend Fund (NYSEARCA:SDIV). This fund holds global stocks that pay a high dividend. It makes monthly payments and it has a trailing annual yield of just over 6 percent. This is huge considering the paltry dividend yields that stocks are paying not just in the U.S., but throughout the world due to low interest rate policies. The fund gives investors heavy exposure to the U.S. but it also gives investors exposure to countries throughout the world (note that there is a sister fund that holds just U. S. equities “DIV.”) Furthermore, this fund offers investors exposure to various sectors of the economy from natural resources to tobacco to utilities.
While the fund has underperformed the S&P 500 over the past couple of years, this trend is reversing as investors are seeking out safety in high yielding assets. One thing investors should be aware of is that a stock’s high yield makes it eligible for this fund, although this in no way makes it a good or a bad investment. One strategy investors might consider if they have the time is to look through the fund’s holdings in order to screen for potential investments.
The third is the AdvisorSharesPertius High Yield Fund (NYSEARCA:HYLD). This is a high yield bond ETF that is superior to the aforementioned iShares High Yield Bond Fund in terms of yield (over 7 percent) duration (meaning how long until the average bond in the fund expires) and performance. Since the HYLD is a small fund, it can take advantage of opportunities in bonds of smaller companies that are undervalued because larger bond funds overlook the smaller; a $10 billion bond fund isn’t going to do the research necessary in order to determine whether or not it is worthwhile to take a $5 million stake in the bonds of a $150 million market cap company.
The managers of the Pertius High Yield Bond fund can do this and it has paid off. Investors will also be pleased that this fund is actively managed, and not based on an index. While this is more expensive, it also means that the fund managers can take advantage of price movements so that they can sell an asset when it rises in price and buy an asset when it falls in price.
Disclosure: Ben Kramer-Miller is long the AdvisorSharesPertius High Yield Fund.