Those preferring not to have a bond allocation might consider the Guggenheim Multi-Asset Income ETF (CVY), which has $350 million in AUM, a 0.84% expense ratio and a 4.28% yield. This bondless ETF employs REITs, MLPs, preferred stock and other equity-tied securities with the potential for high income and favorable risk/return potential. Launched in 2006, it has done fairly well in bull markets, but has also been vulnerable to stock market downturns. On the other hand, its lack of exposure to fixed-income securities means it could fare better than most of its peers in a rising rate environment.
A few multi-asset income ETFs deliver income with closed-end funds. The component funds pay quarterly distributions that consist of both dividends and capital gains, which explains why these fund breeds sport some of the highest yields around despite their high expense ratios.
The YieldShares High Income ETF (YYY) boasts an AUM of $199 million, an expense ratio of 1.72% and a yield of 8.76%. It is based on an index of 30 closed-end funds that have the highest rankings for overall fund yield, discount to net asset value and liquidity. Three-quarters of this ETF is devoted to bonds, and the rest are in stocks. The fund carries a fairly benign management fee of 0.50%, but the fees from the closed-end funds inside of it means the total expense ratio is triple that figure.
The PowerShares CEF Income Composite Portfolio (PCEF), which has $692 million in assets, a 2.02% expense ratio and a 6.73% yield, is divided in roughly equal proportion among bonds, high-yield bonds and an option income-writing strategy.
The index it uses increases its weighting to closed-end funds trading at discounts and decreases the weightings of those trading at premiums.
High yields on international securities translate into high yields for the international and global multi-asset income ETFs that follow them. The aforementioned Arrow Dow Jones Global Yield—with $97 million in AUM, a 0.75% expense ratio and a 6.79% yield—allocates equally to equities, sovereign debt, corporate debt, real estate and alternatives such as MLPs and preferred stock. There are 150 total holdings, with 30 in each basket.
A few actively managed multi-asset income ETFs round out the roster. Launched in 2014, the First Trust Strategic Income ETF (FDIV), which has attracted $103 million in assets and has an expense ratio of 0.87% and a yield of 3.68%, looks for income across a variety of asset classes including high-yield bonds, bank loans, sovereign debt and dividend-paying stocks. Unlike its passively managed peers, this fund has management with broad discretion when it comes to weighting each type of security. It recently had about 40% of assets on the fixed-income side.
Finally, the SPDR SSGA Income Allocation ETF (INKM), a fund with $98 million in AUM, a 0.70% expense ratio and a 2.95% yield, combines tactical allocations among U.S. government and corporate bonds, U.S. convertible and preferred securities, global REITs, and domestic and international dividend-focused equities using ETFs. Its managers adjust asset class weightings depending on their views of the market, as those in the First Trust offering do. The latest fact sheet for the INKM fund showed a 43% allocation to equity, 10% to hybrids and 9% to REITs.
It’s important to keep in mind that while these funds are designed to help cushion against interest rate shocks, they are not immune to them. The higher yields on investments such as MLPs, real estate investment trusts and dividend-paying stocks don’t look quite as appealing when bond yields go up, which could have a negative impact on the price of those securities. Many also invest heavily in bonds, which adds to interest rate sensitivity.
Given the generally conservative blend of assets in these funds, investors also need to keep return expectations in check. “The goal here is to blend different asset classes with a relatively low correlation to each other, not to hit the ball out of the park,” says First Trust’s Ryan Issakainen.
Marla Brill is a financial writer specializing in exchange-traded funds and mutual funds. A regular contributor to Financial Advisor magazine, her work has appeared in MarketWatch, The Boston Globe, Reuters Wealth and Kiplinger’s Personal Finance.