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Enjoying solid current income has become really tough in the current rock-bottom yield environment. The key reason is meager interest rates from government bonds. The Fed has cut rates to zero and has also been pursuing an unlimited QE program to fight the coronavirus-led slowdown.
The situation is almost the same in other countries with the likes of European Central Bank (ECB), Bank of Japan (BoJ) and Bank of England (BoE) following extremely low rates and bond buying programs. Several emerging economies have also been following an ultra-easy monetary policy. The ECB and BoJ, in fact, have a negative rate policy in place.
As of Aug 18, 2020, the benchmark U.S. treasury yield was 0.67% while the real benchmark yield was negative 1.01%. Real yields have been negative for all the maturities’ periods including 5-year, 7-year, 10-year, 20-year and 30-year. Though the Fed expressed its reluctance on yield curve control on Aug 19, which resulted in a slight steepening of the yield curve, the benchmark bond yield stayed at as low as 0.68%.
How to Deal With Low/Negative Yield?
One solution to deal with record-low interest rates could be investing in securities that still offer sizable and benchmark-beating yields. However, the coronavirus outbreak made that difficult with many companies cutting or halting dividends and many high-yielding dividend stocks witnessing awful equity returns.
“Investments such as commercial mortgage-backed securities, private credit for middle-market companies and preferred shares are among those that offer opportunities, said Tony Rodriguez, head of fixed income strategy at Nuveen, which has about $1 trillion under management,” as per a Bloomberg article.
Per Rodriguez, “More than $15 trillion of bonds globally come with negative yields after central banks slashed borrowing costs and rolled out unconventional policies to counter the impact of the pandemic. Some investors have flocked to stocks as a result, taking the view that there are few other viable paths to reasonable returns. That stance is sometimes encapsulated by the acronym “TINA” -- or “there is no alternative,” as quoted on Bloomberg.
In such a scenario, investors may be interested in securities that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the easy ways to ride out the volatile times. High-yielding ETFs also provide investors avenues to make up for capital losses, if that happens at all.
Below we highlight a few ETFs that offer around 5% yields and have offered decent price performance in the past week. These ETFs do not necessarily hail from the equity sector. They are a mix of asset classes. The options are as follows.
This ETF is active and does not track a benchmark. The Virtus InfraCap U.S. Preferred Stock ETF seeks current income and, secondarily, capital appreciation through a portfolio of over 100 preferred securities issued by U.S. companies with market capitalization of over $100 million. The fund charges 2.01% in yield.
Vanguard Global ex-U.S. Real Estate Index Fund ETF (VNQI - Free Report) – Yield 8.25%
The underlying S&P Global ex-U.S. Property Index is a free-float-adjusted, market-capitalization-weighted index that measures the equity market performance of international real estate stocks in both developed and emerging markets. The fund charges 12 bps in fees.
First Trust Dow Jones Global Select Dividend Index (FGD - Free Report) – Yield 6.63%
The underlying Dow Jones Global Select Dividend Index is an indicated annual dividend-yield-weighted index of 100 stocks selected from the developed-market portion of the Dow Jones World Index. The fund charges 59 bps in fees.
The underlying Morningstar Dividend Leaders Index consists of stocks listed on one of the three major exchanges, NYSE, NYSE Amex or Nasdaq, that have shown dividend consistency and dividend sustainability. It charges 45 bps in fees.
Image: Bigstock
Earn Close to 5% Yield With These ETFs
Enjoying solid current income has become really tough in the current rock-bottom yield environment. The key reason is meager interest rates from government bonds. The Fed has cut rates to zero and has also been pursuing an unlimited QE program to fight the coronavirus-led slowdown.
The situation is almost the same in other countries with the likes of European Central Bank (ECB), Bank of Japan (BoJ) and Bank of England (BoE) following extremely low rates and bond buying programs. Several emerging economies have also been following an ultra-easy monetary policy. The ECB and BoJ, in fact, have a negative rate policy in place.
As of Aug 18, 2020, the benchmark U.S. treasury yield was 0.67% while the real benchmark yield was negative 1.01%. Real yields have been negative for all the maturities’ periods including 5-year, 7-year, 10-year, 20-year and 30-year. Though the Fed expressed its reluctance on yield curve control on Aug 19, which resulted in a slight steepening of the yield curve, the benchmark bond yield stayed at as low as 0.68%.
How to Deal With Low/Negative Yield?
One solution to deal with record-low interest rates could be investing in securities that still offer sizable and benchmark-beating yields. However, the coronavirus outbreak made that difficult with many companies cutting or halting dividends and many high-yielding dividend stocks witnessing awful equity returns.
“Investments such as commercial mortgage-backed securities, private credit for middle-market companies and preferred shares are among those that offer opportunities, said Tony Rodriguez, head of fixed income strategy at Nuveen, which has about $1 trillion under management,” as per a Bloomberg article.
Per Rodriguez, “More than $15 trillion of bonds globally come with negative yields after central banks slashed borrowing costs and rolled out unconventional policies to counter the impact of the pandemic. Some investors have flocked to stocks as a result, taking the view that there are few other viable paths to reasonable returns. That stance is sometimes encapsulated by the acronym “TINA” -- or “there is no alternative,” as quoted on Bloomberg.
In such a scenario, investors may be interested in securities that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the easy ways to ride out the volatile times. High-yielding ETFs also provide investors avenues to make up for capital losses, if that happens at all.
Below we highlight a few ETFs that offer around 5% yields and have offered decent price performance in the past week. These ETFs do not necessarily hail from the equity sector. They are a mix of asset classes. The options are as follows.
Virtus InfraCap U.S. Preferred Stock ETF (PFFA - Free Report) – Yield 10.02%
This ETF is active and does not track a benchmark. The Virtus InfraCap U.S. Preferred Stock ETF seeks current income and, secondarily, capital appreciation through a portfolio of over 100 preferred securities issued by U.S. companies with market capitalization of over $100 million. The fund charges 2.01% in yield.
Vanguard Global ex-U.S. Real Estate Index Fund ETF (VNQI - Free Report) – Yield 8.25%
The underlying S&P Global ex-U.S. Property Index is a free-float-adjusted, market-capitalization-weighted index that measures the equity market performance of international real estate stocks in both developed and emerging markets. The fund charges 12 bps in fees.
First Trust Dow Jones Global Select Dividend Index (FGD - Free Report) – Yield 6.63%
The underlying Dow Jones Global Select Dividend Index is an indicated annual dividend-yield-weighted index of 100 stocks selected from the developed-market portion of the Dow Jones World Index. The fund charges 59 bps in fees.
First Trust Morningstar Dividend Leaders (FDL - Free Report) – Yield 5.15%
The underlying Morningstar Dividend Leaders Index consists of stocks listed on one of the three major exchanges, NYSE, NYSE Amex or Nasdaq, that have shown dividend consistency and dividend sustainability. It charges 45 bps in fees.
Nationwide Risk-Managed Income ETF (NUSI - Free Report) – Yield 4.84%
This ETF is active and does not track a benchmark. The Nationwide Risk-Managed Income ETF seeks current income with downside protection.
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