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Is This the Time to Buy High-Yielding ETFs?

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The hunt for dividend in the equity market is always steady irrespective of how it is behaving. After all, who doesn’t like a steady stream of current income along with capital gains?

The craving for current income might be more acute at the current level as the benchmark U.S. treasury yields dropped to 0.92% on Dec 3 from 1.88% recorded at the start of the year. In fact, the benchmark yield has slumped to as low as 0.52% this year as safe-haven trades have taken an upper hand amid the pandemic.  

However, things have been changing from last month despite the rising cases of coronavirus globally. Wall Street has been charged up since election. Both Pfizer (PFE) and Moderna (MRNA) said their vaccines were about 95% effective in preventing the COVID-19. AstraZeneca too came up with an upbeat vaccine update. All these instilled optimism in the markets.

Apart from this, a divided Congress in the United States acted as a tailwind. In a nutshell, the global markets have been behaving positively lately on the dual tailwinds of a likely divided U.S. Congress (which indicates the likely reiteration of the existing policies) and vaccine optimism (which indicates a return to economic normalcy) (read: Vaccine Hopes & Divided Government: Sector ETFs to Win).

This also indicates reflationary pressure in the near term and an uptick in benchmark U.S. treasury yields. Notably, the benchmark treasury yield jumped last month to the tune of 0.98% to reflect the optimism in the market.

A Perfect Backdrop for High-Yield Investing

The accommodative Fed, ECB, BoJ and many other global central banks did good for the stocks as there were incessant cheap money inflows. Thus, along with stocks, higher income-producing corporate bonds should also fare better in the current optimistic scenario as investors might be in search of solid and steady current income.

“With yields [still] so low, bonds can no longer do all the things they’ve been doing for investors during this secular declining interest rate environment over the last forty years,” said David Jilek, chief investment strategist at Gateway Investment Advisers, noted MarketWatch (read: Is 60/40 Rule Obsolete Now? 5 High-Yielding ETFs to Play).

“In the zero-yield world, which we think will be with us for years, bonds offer neither much return nor protection against equity falls,” said Jan Loeys and Shiny Kundu, strategists at JP Morgan, in a recent note, as quoted on MarketWatch.

In this light, certain risk-on sentiments can probably be exercised even with the bond investing. High-yield corporate bonds or total market bonds could prove to be a good investment option in this regard. High-dividend paying equity ETFs are too great options.

Against this backdrop, below we highlight a few high-yielding ETF options for investors.

iShares IBoxx High Yield Corporate Bond ETF (HYG - Free Report)

The underlying Markit iBoxx USD Liquid High Yield Index is a rules-based index consisting of liquid U.S. dollar denominated, high-yield corporate bonds for sale in the United States. Consumer Cyclical (20.12%), Communications (18.86%), Consumer Non-Cyclical (15.16%) and Energy (11.85%) are the top four sectors of the fund. Annually, the fund yields 4.88%.

Vanguard Total Bond Market ETF (BND - Free Report)

The underlying Bloomberg Barclays U.S. Aggregate Float Adjusted Index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities all with maturities of more than 1 year. The fund yields 2.27% annually (read: ETF Asset Report of October).

SPDR Bloomberg Barclays Convertible Securities ETF (CWB - Free Report)

Convertible bonds are those that can be exchanged if the holder chooses to, for a specific number of preferred or common shares if the company's share price climbs past a said conversion price during the bond's tenure. The underlying Bloomberg Barclays US Convertible Liquid Bond Index is designed to represent the market of U.S. convertible securities.The fund yields 2.20% annually and charges 40 bps in fees (read: Convertible Bond ETFs: A Pandemic Winner).

Invesco Global Listed Private Equity ETF (PSP - Free Report)

Private equity firms bring in the much-needed cash to small and medium-sized companies. Private equity is composed of funds and investors that directly invest in private companies, or engage in buyouts of public companies, resulting in the delisting of public equity. The fund yields as high as 6.28% annually and its expense ratio is 1.78%.

Global X SuperDividend U.S. ETF (DIV - Free Report)

The underlying INDXX SuperDividend U.S. Low Volatility Index tracks the performance of 50 equally weighted common stocks, MLPs & REITs that rank among the highest dividend-yielding equity securities in the United States. Consumer Staples, Energy, Real Estate and Utilities have a double-digit weight in the fund. The fund yields 9.08% annually and charges 46 bps in fees.

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