Top Three High Yield Financial ETFs - ETF News And Commentary
February 14 2012 - 6:03AM
Zacks
Historically, the financial sector has been a key source of
yield for investors. Many of the largest financial institutions
paid solid levels of income on a regular basis for decades, at
least until 2008. In this dark time, many major institutions, which
were cornerstones of many dividend-focused portfolios—such as
Citigroup (C)
and Bank of America
(BAC)—were forced to
drastically cut or even suspend dividends in order to survive.
While many firms have resumed their payouts or boosted them as the
economy has slowly rebounded, the promise of the financial sector
as a dividend haven still has not returned on a large scale.
In fact, many popular financial sector ETFs are still paying out
paltry sums to investors even though banking and the broad
financial sector is on the mend. The ultra-popular
Financial Select Sector SPDR
(XLF) has a dividend of
about 1.6% while the Dow Jones U.S. Financial Services Fund
(IYG) offers a payout of
just 1.1%, and the RevenueShares Financials Sector Fund
(RWW) sees total
dividends of just 1% on a yearly basis, hardly enough for most
looking for robust current income levels in this low rate
environment. This is especially true given the many other options
for yield in the equity world at this time, as many funds in the
utilities, consumer staples, or telecom spaces are not suffering
from the same problems, paying out solid levels to investors in
spite of the still sluggish economic environment (read Top Three
High Yield Junk Bond ETFs).
Yet, investors should still note that these low dividend yields
are not inherent to the broad financial sector at this time and
that several corners of the market still offer outsized payouts.
For investors who are searching for yield, we have highlighted
three funds below which could offer excellent exposure while at the
same time achieving high levels of dividend income. With this
focus, the following ETFs could make for outstanding additions for
those who are uncertain about adding too much to the non-cyclical
sectors (such as utilities) but are looking to boost payouts
nonetheless (all payouts are in TTM Distribution Yield terms):
iShares MSCI Emerging Markets Financials Index Fund
(EMFN)
For investors seeking a high yield play that has room to grow
over the years, EMFN is an interesting pick. The fund tracks a
benchmark of emerging market financial firms, holding just under
100 securities in total and charging investors 67 basis points a
year for its services. Currently, the fund is heavy in banks, while
country exposure is tilted towards China (29.7%), Brazil (13.2%),
and South Africa (10.7%). Currently, the product has a TTM yield of
6.3%, a level that should soothe those who are put-off by the
fund’s relatively high beta and volatility. Additionally, it should
be noted that the product is tilted towards giant and large caps so
while the fund may be more volatile than more ‘traditional’
financial ETFs, its focus on giant securities and an average market
cap of close to $25 billion should help allay some concerns (read
EUFN: The Best ETF For The Euro Crisis).
PowerShares Global Listed Private Equity ETF
(PSP)
If investors are searching for a diversified play on the private
equity sector, PSP is a great high yielding choice. The fund tracks
about 64 firms whose primary objective is to invest in and lend
capital to privately held companies, charging investors a rather
high 2.55% a year in fees for the service. Luckily for investors,
the product’s yield is a robust 7.2%, suggesting that the fees will
be easily offset by this payout. The product has a focus on
American securities but European firms also comprise a good chunk
of the assets as well with British, Swedish, and French companies
rounding out the top nations. In terms of individual holdings,
Leucadia National
(LUK), Ratos AB and Onex
Corp make up the top three, with each making up between 4.2% and
4.8% of PSP (see Top Three High Yield Global Sector ETFs).
PowerShares KBW High Dividend Yield Financial Fund
(KBWD)
For a truly high yield product in the financial space, it is
pretty hard to beat PowerShares’ KBWD. The fund tracks a dividend
yield weighted index that looks to reflect about 24-40 companies in
the financial space across a variety of the various financial
subsectors. Currently, the fund holds 36 securities in total,
charges 93 basis points a year in fees but pays out a whopping
10.8% in trailing twelve month yield terms, by far the highest in
the space. However, investors should note that the product is
focused in on American securities, suggesting that it may not be
the most diversified from a geographic perspective when compared to
others on the list (see Inside The SuperDividend ETF).
From an individual holding perspective, Chimera
Investment Corp (CIM),
American Capital Agency Corp
(AGNC) and
Apollo Investment Corp
(AINV) take the top
three spots in the fund, combining to make up about 17.5% of the
total assets in KBWD. This top holdings list also suggests that the
fund has a definite tilt towards those with heavy exposure to the
REIT segment of the industry, a usual leader in terms of yields. In
fact, these top three holdings have an average yield of 14.3%
implying that this corner of the market is likely to carry the fund
from a yield perspective going forward.
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AMER CAP AGENCY (AGNC): Free Stock Analysis Report
APOLLO INV CP (AINV): Free Stock Analysis Report
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
CHIMERA INVEST (CIM): Free Stock Analysis Report
LEUCADIA NATL (LUK): Free Stock Analysis Report
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