As the European crisis and other geopolitical concerns dominate the headlines, stocks continue to falter as we head into the new year. These trends have pushed many investors deep into government bonds, knocking yields on the ten year note to levels that are at historic lows. Thanks to these anemic payouts and broad uncertainty in the equity markets, dividend investing has once again gained favor among most investors.
This is especially true for those with a global focus as equities in foreign markets have been far more volatile than their American counterparts over the course of 2011 (read ETFs Vs. ETNs: What’s The Difference?). In order to combat this, a short-term focus on yield could be ideal as it may help to soften the blow of any future volatility while at the same time delivering much-needed income to a portfolio. For these investors, any of the following three high yield sector ETFs could make for interesting choices:
Guggenheim Shipping ETF (SEA - ETF report) - 7.2% distribution yield
This fund tracks the Dow Jones Global Shipping Index which follows companies in the global shipping industry that are high dividend payers. The Index is weighted by float-adjusted market capitalization and the weights of individual components are capped at 20%. Additionally, the aggregate weight of components with weightings of 4.5% or more is restricted to 45%. Currently, the fund holds 25 securities in total while charging 0.65% a year in fees (see Top Three High Yield Junk Bond ETFs).
For country exposure, American and Japanese securities each comprise about 30% of the fund while Greek firms make up about 12.4% of total assets. Top individual holdings go to Mitsui Osk Lines and Nippon Yusen KK which both make up at least 10.9% of the portfolio, although three more firms make up at least 5.5% of assets. The fund has had a horrendous 2011, losing close to 47.7% thanks to broad fears over a slowdown in global trade. Nevertheless, this has produced a robust yield in terms of both distribution yield and 12-month yield which is actually showing a payout of 7.5%.
iShares MSCI ACWI ex-US Utilities Index Fund - 8.1% distribution yield
For investors seeking a play on the ultra-safe utilities space, this fund from iShares could be an interesting choice. The fund seeks investment results that correspond to the price and yield performance of the MSCI All Country World ex-USA Utilities Index which is a global benchmark of firms that are in that sector. The product holds 80 securities in total and has an expense ratio of 0.48%, putting it near the low end of ex-US sector ETFs (read Three Low Beta Sector ETFs).
AXUT has a heavy focus on European equities as companies from that region of the world comprise eight of the top ten spots. E.ON takes up the biggest weighting at 7.6% and the company is closely trailed by GDF Suez and National Grid to round out the top three. Despite the relative safety of the sector, this sector ETF has also been beaten down in 2011, tumbling by 21.3% since the start of the year. Investors should also note that the product sees great variations among its yield metrics as the SEC yield is just over 3.1% while the 12 month yield is closer to the current distribution yield of 8.1%.
PowerShares Global Listed Private Equity ETF (PSP - ETF report) - 13.1% distribution yield
For a high risk, high dividend play, it is hard to beat this financial ETF from PowerShares. The fund tracks the Global Listed Private Equity Index which including business development companies and other financial institutions or vehicles whose principal business is to invest in and lend capital to privately held companies. The Index is rebalanced and reconstituted quarterly and generally consists of between 40 and 70 companies. The product currently holds 65 securities and has a pretty high net expense ratio of 2.55%, thanks to flow through fee costs (see Inside The Closed-End Fund ETF).
PSP is pretty well diversified as no single company makes up more than 4.4% of total assets. In fact, the top three holdings, Ratos AB, HAL Trust, and Leucadia National (LUK - Snapshot Report), combine to make up less than 13% of total assets. In terms of market cap levels, this fund, more so than the other two on this list, has a small and mid cap tilt, focusing nearly 50% of its assets towards small cap securities. Unfortunately, given the broad worries of the financial sector, PSP has also slumped on the year, plunging by 28.2% since the start of January. Furthermore, while the distribution yield may be impressive, investors should note that the 30 Day SEC yield is far lower coming in at just 3.4%. This suggests that there has been great variance in the fund’s payouts to investors implying that while yields may be high in the fund, they are by no means guaranteed.
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