2 High-Yield ETFs To Offset Increased Market Volatility And Valuation Pressure
Investing.com | Jul 21, 2021 04:25AM ET
We’re living in the continued world of low interest rates. Fed Chair Jerome Powell’s recent statement means the central bank is unlikely to change its monetary policy or increase interest rates soon. Meanwhile, the new week has brought increased volatility and downward pressure for broader equity indices.
As a result, many investors are looking for high yields from their investments. Such an income usually comes from dividends or bonds. However, there is no free lunch in investing, and a high yield could easily mean taking on significant risk. Therefore, as always, investors would need to do due diligence before committing their capital into high-yield investments.
Today, we introduce two exchange-traded funds (ETFs) that could appeal to a range of readers.
h2 1. Invesco KBW Premium Yield Equity REIT ETF/h2Current Price: $23.82
52-Week Range: $16.00 - $24.30
Dividend Yield: 7.62%
Expense Ratio: 0.35% per year
The Invesco KBW Premium Yield Equity REIT ETF (NASDAQ:KBWY) focuses on small- and mid-capitalization US real estate investment trusts (REITs) with competitive yields. The fund started trading in December 2010.
KBWY has 31 holdings and tracks the KBW NASDAQ Premium Yield Equity REIT Index. In terms of sectoral breakdown, health care REITs lead the list (21.7%), followed by office (17.6%), diversified (1.464%) and industrial (13.67%). Readers might be interested to know that diversified REITs typically invest in more that one property type.
More than 40% of assets in this $354.3-million fund are held in the top 10 businesses. Those names include American Finance Trust (NASDAQ:AFIN), Global Net Lease (NYSE:GNL), Office Properties Income Trust (NASDAQ:OPI), Preferred Apartment Communities (NYSE:APTS) and Bluerock Residential Growth REIT (NYSE:BRG).
Since the start of the year, KBWY is up more than 11%. Last year, a large number of REITs came under significant pressure as the pandemic led to lower revenues and tight cash flows. However, as market sentiment turned positive, KBWY has seen improved returns. Yet, there could be short-term profit-taking during the current earnings season, which would offer a better margin of safety.
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Most long-term investors regard real estate as an important asset class to own in a diversified portfolio. We’d look to invest in KBWY around $22 or below.
h2 2. Amplify High Income ETF/h2Current Price: $17.19
52-Week Range: $14.26 - $17.82
Dividend Yield: 9.12%
Expense Ratio: 2.45% per year
The Amplify High Income ETF (NYSE:YYY) invests in closed end funds (CEFs), which are publicly traded investment companies. Since its inception in June 2013, assets have reached $489.7 million. We need to point out that since this is a fund of funds, the total expense ratio is high.
YYY has 45 holdings and tracks the returns of the ISE High Income Index. The current allocation is 30% equities and 70% fixed income.
In terms of asset classes, high-yield bond funds comprise the highest portion, with 21.6%, followed by loan participation and multi-sector bond funds, with 20.39% and 8.63%, respectively. A close inspection of the ETF shows a large percentage of assets fall within the high credit risk range, meaning they have a high bankruptcy risk.
The fund’s top 10 holdings account for almost 30% of the fund. Among the leading CEFs in the roster are the PIMCO Corporate & Income Opportunity (NYSE:PTY), Oxford Lane Capital Corp (NASDAQ:OXLC), Liberty All Star Equity Closed Fund (NYSE:USA), PIMCO Dynamic Income Fund (NYSE:PDI) and PIMCO Dynamic Credit Income Fund (NYSE:PCI).
Over the past year, the fund has been up about 16.4% and hit a multi-year high in mid-June. Investors looking for diversification could consider investing in this fund of funds. However, others might regard the high net expense ratio and the overexposure to high-yielding assets somewhat problematic.
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