The volatile start to 2015 has once again highlighted the importance of income-focused investing. Be it bonds, high dividend equities, or pass-through securities, picks that zero in on higher yielding securities have done well to start this uncertain year.
And while some have been worried about the specter of a possible Fed rate hike later in the year and its impact on higher yielding securities, fighting deflation has really been the focus of central banks around the globe instead. Europe appears to be on the cusp of a QE program of its own, while central banks from India to Denmark have slashed rates in recent weeks, showing us that much of the world is still decidedly in easing mode (read India ETFs Surge After Surprise Rate Cut).
Commodities are also helping this trend, with oil especially easing inflationary worries. The important commodity is having significant trouble finding any positive momentum as of late, largely thanks to both demand worries and a flood of supply, dragging down input costs for a variety of industries in the process.
Top Income Picks
In this type of environment, investors shouldn’t be worried about their income picks for 2015. And while you can always buy a few select high quality dividend payers here in the U.S., ETFs offer up the chance to truly diversify your selections in the income world which should protect against a slump in any one sector of the economy.
And best of all, many of these ETFs have been beaten down in recent months, putting these high yielders into value territory. This makes many of these funds interesting picks not just for their yield, but in terms of a bounce back should markets continue to favor income securities.
Below, we have highlighted five great selections that fit this bill and offer up a nice combination of solid diversification benefits, value potential, and strong yields. In fact, all of the five listed below have 30 Day SEC yields in excess of five percent, making them excellent income choices for even the most discriminating investor out there:
Arrow Dow Jones Global Yield ETF (GYLD - Free Report)
For investors who want exposure to a variety of high yielding market areas, ArrowShares’ GYLD could be an excellent choice. This fund tracks the Dow Jones Global Composite Yield Index, giving access to five key market areas; global equities, global real estate, global sovereign debt, global alternatives, and global corporate debt (read 4 Excellent Dividend ETFs for Income and Stability).
The fund puts 20% in each of five sectors, holding 30 securities in each of the five major groups. This ensures that the product is well diversified and that single company risk isn’t an issue. The fund pays a 30-Day SEC Yield of 6.7% so it is definitely a choice for investors seeking current income in today’s market.
SPDR S&P International Dividend ETF (DWX - Free Report)
If you just want to focus on equities instead, DWX could be your ticket as this fund only focuses on high yielding stocks from around the globe. This is done by tracking the S&P International Dividend Opportunities Index, a benchmark that holds about 100 securities in its basket.
Currently, the fund is a bit heavy in traditional high yield sectors like financials (28%), telecoms (17.6%), and utilities (15.9%), though no single company accounts for more than 3.5% of the total assets. For yields, this pays a solid 5.3% in 30 Day SEC terms, while it charges investors a reasonable 45 basis points a year in fees for the service.
First Trust Tactical High Yield ETF (HYLS - Free Report)
This is one of the few actively managed ETFs on a high income list and its focus is on the high yield bond world. In total, the ETF holds 270 securities in its portfolio and it has a net weighted average effective duration of just 3.1 years.
Yet despite this low duration, the product has an impressive 6.1% 30-Day SEC Yield making it another great income destination. And for those worried about holding higher risk junk bonds, it is worth noting that no single security makes up more than 2.5% of assets, so concentration issues aren’t really a problem in this ETF (read Where to Go in Fixed Income ETFs When Short-Term Bond Yields Are Rising).
ProShares High Yield Interest Rate Hedged ETF (HYHG - Free Report)
Some investors might be worried about bonds in general in the current environment, and who can blame them if rates do rise. However, these investors may want to look to HYHG for exposure instead as this fund still gives high yield bond access, but it also protects against rising rates as well.
The fund has an interest rate hedge built into its strategy as it takes a short position in U.S. Treasury futures. However, it still has a pretty high yield (and a modest expense ratio of just 50 basis points) of 6.3% in 30 Day SEC terms, so this could be a safer yield play for investors worried about the possibility of rising rates.
YieldShares High Income ETF (YYY - Free Report)
For a truly high income choice, YYY may be the best bet of the group. The fund tracks the ISE High Income Index which consists of 30 closed-end funds ranked highest overall in three criteria, fund yield, discount to net asset value, and liquidity (also see 3 Excellent ETFs for Growing Dividends).
Current holdings focus on a variety of CEFs from a number of fund providers, though no single CEF accounts for more than 5% of assets. The yield is where this fund truly shines though, as YYY has an impressive 30-Day SEC Yield of 8.66%.
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