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Global Treasury Yields Dive: Play These Sector ETFs

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The recent shockwaves emanating from Brexit uncertainty and a yet another dovish Fed meeting in June unnerved investors, spurring a rally in safe assets. The Fed chief Yellen acknowledged the negative consequences of Britain’s likely separation from the European Union. The U.S. central bank indicated that the possibility of a Brexit is one of the reasons which led it to stay put on the policy tightening issue in the June meeting (read: Dovish Fed Trims U.S. Outlook: ETFs to Buy).

Meanwhile, none of the economies around the world are looking up with the most developed economies facing deflationary threats. The labor market in the U.S. has suddenly fallen into a tight spot while the emerging economies, mainly China, are facing hard-landing fears. Japanese equities are going through a rough stretch on the surging yen despite massive policy easing. Notably, yen acts a safe haven and is on a tear.

The Euro zone is another victim of Brexit bets. All in all, central banks have little say on markets sentiments. Developed market inflation remains abysmally low. Central banks across the board are striving to beef up asset values, charge up their sagging economies and boost inflation (read: Safe Haven ETFs Surge on Brexit Fears).

The European Central Bank, Bank of Japan, the Swiss National Bank, and the central banks of Sweden and Denmark are now practicing a negative interest rate policy. A reduction in rates would spur activities in the economy which in turn should translate into higher growth.

Thin Bond Yields Worldwide

The dual effect of rock-bottom interest rate polices and a bid to safety led Treasury bond yields in many corners of the globe to plunge in recent times. The yield on the benchmark 10-year U.S. Treasury note plummeted to almost four-year low levels as per Wall Street Journal. Similar-maturity benchmarks in Germany, Japan and Australia, U.K. and Switzerland also dived to new record lows, boosting those bond prices.

On June 16, 2016, 10-year German and Japanese Treasury bond yields slipped to negative 0.038% and negative 0.21%. Wall Street Journal noted that almost the entire yield curve for Swiss bonds is negative (read: Japan Delays Tax Hike: Small-Cap ETFs to Play).

The yield on 10-year U.S. Treasury note was 1.57% on June 16, while it declined to 1.995% for Australian bonds. The Bloomberg Global Developed Sovereign Bond Index has been on an upward trajectory over the last four weeks (as of June 16, 2016), the best ever stretch since October 2013 (read: Treasury Headed for Best Run: 5 Outperforming ETFs).

Sector ETFs to Benefit

Given this, many investors may want to have a look at those sector ETFs that normally benefit from a dip in yields. Below we highlight two such sectors and their ETFs for investors looking for both solid current income and capital gains.


First, the utility sector is considered one of the safe sectors and comes across as one of the best equity picks when the market is tumultuous. Plus, the sector normally offers strong yields and performs better in a low-rate environment as it requires a huge debt for its operations.

DJ Brookfield Global Infrastructure ETF TOLZ

The $28.5-million fund has over 50% exposure in the U.S. while Canada and UK also have double-digit exposure. The fund is heavy on the Oil & Gas Storage & Transportation (32.62%) while Electricity Transmission & Distribution (19.31%) and MLPs (15.45%) and Communications (10.36%) round out the next three spots. The fund charges 46 bps in fees and yields about 4.65% annually (as of June 17, 2016). The fund is up over 9.8% so far this year (as of June 17, 2016).

Guggenheim S&P High Income Infrastructure ETF GHII

This $2.5-million ETF is also heavy on the U.S. (49.2%) followed by Canada (21.6%), Brazil (6.2%) and Australia (5.7%). Energy is the top sector of the fund with 51.7% exposure while Utilities takes the next spot with 43.9% weight. GHII charges 45 bps in fees and yields about 4.41% annually (as of June 17, 2016). The fund is up over 18.5% so far this year (as of June 17, 2016).

Real Estate  

It is another high-yielding sector. The ongoing accommodative policy measures in Japan and Europe can have a big beneficial impact on the rate-sensitive real estate sector.

iShares Global REIT ETF (REET - Free Report)

The $162.9-million ETF invests about 64.4% in the U.S. while Japan and Australia take 7.7% and 7.3% focus of the fund, respectively. The fund charges 14 bps in fees. REET yields about 3.62% annually and it has returned about 6.5% in the year-to-date frame (as of June 17, 2016).

FlexShares Global Quality Real Estate Index Fund GQRE

The $197.9-million fund gives quality exposure to the global real estate companies. Here also, the U.S. grabs the major share of 51.5% followed by Japan (10.5%) and Hong Kong (10.2%). This all-cap fund is heavy on commercial REITs (46.3%). It charges 45 bps in fees and yields about 2.51% annually (as of June 17, 2016).

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