High Yielding ETF's
What's a high yielding ETF and why should I have them in my portfolio?
An ETF is simply a group of stocks that are pooled together and sold as a unit, so in essence, for each share that you buy of an ETF, you'll own a tiny portion of each company within the portfolio. It's less risky to have a broadly diversified group of companies in your portfolio and ETFs can help you achiever this goal.
ETFs can sometimes offer high yields by holding dividend paying companies and government or corporate bonds. Sometimes companies will offer preferred shares of their stock, which is kind of a hybrid between regular stock and bonds. There is an ETF for every style, and this site has some of my favorite investments.
SPDR High Yield Bond ETF (JNK)
Style: This ETF holds high yield, but risky corporate bonds.
Expense ratio: 0.4%
Top holding: Citigroup (4.18% of portfolio)
Assets: 5.9 billion
Corporate bonds during the financial crisis of 2008, had a bit of a bad reputation as default rates skyrocketed. However, companies are in much better financial health these days and default rates are less than 3%. With a nice 10% yield, this ETF is perfect for those in, or nearing retirement but who wish to take some risk. Or, for those who wish to invest on margin and earn money on the spread.
IShares High Yield Corporate Bond (HYG)
Style: Investing in high yield corporate bonds
Expense Ratio: 0.5%
Top Holding: NRG Energy at 1.45% of holdings.
Assets: 6.86 Billion
This is a similar ETF to JNK but has a slightly lower yield. However, they have a wider array of holdings, with the largest one being only 1.45% of the total portfolio, so in theory there is a lower risk of depreciation if any of the bonds default.
HYG and JNK are both good investments for those looking to add some income to their portfolio. Government bonds are so low-yielding these days, that HYG and JNK could be a better idea for those tolerant of a bit of risk.
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Ishares S&P US Preferred Stock Index (PFF)
Style: Preferred US Stocks in the S&P index (major US Companies)
Expense Ratio: 0.48%
Top Holdings: Barclays: 4.6%, Ford: 4.45% of holdings
Assets: 5.64 Billion
Preferred stocks are issued by companies looking to raise capital. They offer higher dividends than their regular stock. In addition, in the event of bankruptcy, they are one of the top in line to be paid.
This ETF is good for those looking to invest solely in US companies but wanting some income. This ETF will probably not appreciate significantly so it's solely an income play.
More High Dividend ETF Information
Guggenheim S&P Global Dividend Opportunities (LVL)
Style: Investing worldwide in companies that pay dividends. 25% of holdings are in the US, with Spain at 23%.
Expense Ratio: 0.6%
Top Holdings: Transdigm Group 3.7%, Frontier Communications 3.6% of holdings
Assets: 19.56 Million
This is an excellent ETF for those wanting some international exposure, but with some income to go along with it.
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iShares S&P Global Telecommunications (IXP)
Style: Worldwide exposure to Telecom companies, which traditionally pay quite high dividends.
Expense Ratio: 0.48%
Top Holdings: AT&T 15, Vodaphone 12%
Assets: 376 Million
This is an excellent choice for those looking for some telecom or international exposure in their portfolios. The ETF invests in the USA as well as international companies. Those looking for some yield along with some capital appreciation should consider this for their portfolio.
How to Choose the Best High Yield ETF
- From Zenedy.com
Excellent, basic information.
PowerShares Financial Preferred (PGF)
Style: This ETF buys preferred stocks from financial institutions both within the USA and outside of it.
Expense Ratio: 0.65%
Top Holdings: Barclays 16%, Wells Fargo 5%
Financial institutions were hit hard during the financial crisis of 2008 but they have made a nice recovery and are now in decent financial health. Preferred shares pay higher yields than common stock. This is a suitable investment for someone who is looking for exposure to the financial industry but doesn't want the risk of a single company.
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iShares iBoxx $ Invest Grade Corp Bond (LQD)
Style: Investment grade corporate bonds, which rate higher than bonds in which JNK or HYG invests in.
Expense Ratio: 0.15%
Top Holdings: Blackrock 1.18%, Wachovia 1.06 % of holdings
Assets: 14.86 Billion
This is an excellent choice for those looking for yield, higher than the US government bonds offer, but without a lot of risk. The very low expense ratio and the fact that no one company occupies a large part of the portfolio makes it a good buy.
First Trust Euro Select Dividend (FDD)
Style: European Dividend Stocks\
Expense Ratio: 0.6%
Top Holdings: Man Group (England), Banco Santander (Spain)
Assets: 10.73 million
This ETF consists of 30 high-dividend paying European stocks. This is an excellent way to get some exposure to big European companies that are not available on the New York Stock Exchange. Companies in Europe are generally stable, big, blue-chip companies and usually make quite safe investments.