Global X Funds on Tuesday launched two exchange-traded funds designed to deliver healthy income streams—one aims to produce a specific yield; the other a more flexible yield.
The Global X TargetIncome 5 ETF (TFIV) provides broad exposure to income-producing asset classes using a portfolio of ETFs and is built to achieve a 5 percent yield, net of fees. The Global X TargetIncome Plus 2 ETF (TFLT), which is also structured as a fund-of-funds, is designed to achieve the yield on the current 10-year U.S. Treasury note, plus 2 percent.
Given that 10-year Treasuries are knocking on the door of a 3 percent yield, the funds’ expected yields are basically a wash for now. But that could change depending on what happens with interest rates.
Both ETFs track indexes developed by Wilshire Associates that draw from the same universe of 11 eligible ETFs which collectively track the performance of equities or bonds in developed or emerging markets, senior loans, preferred securities, real estate investment trusts, master limited partnerships and energy infrastructure equities, U.S. Treasury bonds, and U.S. Treasury Inflation Protected Securities. The underlying bond ETFs can include both investment grade and non-investment grade securities.
The difference between the two funds lies with how their respective portfolios are structured, and not all 11 ETFs are employed at the same time—at least not for the time being.
In the case of TFIV, the portfolio comprises the Xtrackers USD High Yield Corporate Bond ETF and Global X SuperDividend ETF (both slightly more than 20 percent of the portfolio); the SPDR Blackstone / GSO Senior Loan ETF and VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (both at more than 19 percent), and the Global X SuperDividend U.S. ETF and Global X U.S. Preferred ETF (both at more than 10 percent).
As for TFLT, the constituents are as follows: the Xtrackers USD High Yield Corporate Bond ETF and SPDR Blackstone / GSO Senior Loan ETF are both at about 20 percent of the portfolio; the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF is 19.4 percent; the Global X U.S. Preferred ETF and Global X SuperDividend ETF are in the 15 percent range; and the Global X SuperDividend U.S. ETF is a smidge over 10 percent.
They sound pretty similar, but it helps to note that TFIV and its mandate of a 5 percent return has a slightly greater allocation to equities and a slightly smaller position in preferreds than does the TFLT fund. Both have a 59 percent allocation to bonds, and both expect to pay monthly distributions.
And their costs are nearly identical: TFIV has total operating expenses of 0.77 percent versus 0.78 percent for TFLT.
Given that both funds are fairly similar in structure and—at least for now—in projected yield, it’s fair to ask why the need for both funds?