With negative interest rates dominating international headlines and the benchmark 10-year U.S. treasury yields slipping to below 2%, there is huge demand for income ETFs. Yield-hungry investors have rushed to high-dividend securities and ETFs in search of steady current income.
Global growth continues to flounder and the Fed is in no mood to hike rates frequently this year suggesting continued outperformance by dividend ETFs. That being said, we would like to note that current income turns futile if you end up paying high expenses for a high-dividend or high-income ETF (read: 3 Dirt Cheap High Dividend ETFs to Watch).
After all, everybody wants value for money. Also, cheaper funds have the potential to outperform the pricey choices. Keeping capital gains or losses constant and considering an expense ratio of 1%, a fund of $10,000 invested at 8% annual dividend will grow to $19,672 in 10 years, while the same fund invested at an expense ratio of 0.1% will grow to a higher amount of $21,390.
But there are a few high income ETFs that can be intriguing picks despite the high costs associated with them. These ETFs have given decent performances so far this year (as of April 15, 2016) overruling the heightened volatility in the market. Also, since these have offered solid yields, their high costs do not hurt investors.
Below we highlight a few of such high dividend ETFs that are worth their high expense ratios (read: Winning ETF Strategies for Q2).
YieldShares High Income ETF (YYY)
The fund seeks to provide the performance of the ISE High Income Index. This $81.5-million fund definitely has a high expense ratio of 1.82% but yields a stupendous 10.71% annually. The fund holds 30 closed-end funds ranked the highest overall by the ISE on the basis of three criteria namely fund yield, discount to net asset value and liquidity.
Around 66% of the fund is targeted at debt securities while the rest are in equities. The fund is up 2.5% so far this year (as of April 15, 2016). Though the capital gains here are not solid, a 10.71% yield makes up for feeble market performance.
AdvisorShares Athena High Dividend ETF (DIVI)
This $7.4-million actively managed ETF offers dividend yield of about 4.05% and has an expense ratio of 1.30%. The fund is heavy on North America (55%) followed by emerging Asia (16%) and developing Asia (6%). None of the stocks accounts for more than 4.36% of the portfolio. The fund is up 10.7% so far this year (as of April 15, 2016) – a sturdy performance which makes its dividend-adjusted return sturdier.
Guggenheim S&P Global Dividend Opportunities Index ETF (LVL)
This ETF follows the S&P Global Dividend Opportunities Index which focuses on high yielding securities worldwide. As many as 109 securities are chosen from around the world for inclusion, with heavy exposure going toward finance (26.36%), utilities (22.21%), telecom (16.3%) and energy (12.88%) securities (read: Earn 5% Plus Yield with These Global ETFs).
Australian, American and British stocks account for about 20.6%, 17.1% and 15% of total assets. The $52 million-fund charges 65 bps in fees. The fund yields 6.06% annually (as of April 15, 2016) and is up 8.3% so far this year (as of April 15, 2016).
First Trust Dow Jones Global Select Dividend ETF (FGD)
The $352-million fund provides exposure to the 100 high-yielding stocks. None of the securities accounts for more than 1.73% of the assets. From a sector look, financials takes the top spot at 34.33% while energy, telecom, industrials, consumer discretionary and utilities round off the next five spots with double-digit exposure each (see: all the World ETFs here).
About half of the portfolio is tilted toward large cap stocks while mid caps and small caps take the remainder. In terms of country profile, Australia, U.S., Canada and United Kingdom occupy the top four positions.
The fund yields 5.16% annually while its expense ratio comes in at 0.58%. Agreed an expense ratio of 0.58% is not too steep, but it is way higher than many high dividend ETFs like Vanguard
High Dividend Yield ETF (VYM) which charge just 10 bps in fees. The fund is up 5.3% so far this year (as of April 15, 2016).
SPDR SSgA Income Allocation ETF (INKM)
INKM is an actively managed fund of funds that seeks to provide total return by focusing on investment in income and yield-generating assets. The ETF primarily invests in SPDR ETFs, but also includes other exchange traded products. Investment grade bonds (31.5%) and equity (27.6%) occupy the top two spots in the portfolio. The expense ratio is 70 basis points, while it yields about 4.13% annually. The fund is up 3.3% so far this year (as of April 15, 2016).
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