3 Sector ETFs with Solid Yields - ETF News And CommentaryWednesday, November 21, 2012
Thanks to low bond rates and a seemingly endless parade of QE, investors have pushed to equities for yield. Yet many stocks haven’t exactly boosted current income that much, as a broad investment in the S&P 500 currently pays out an annual yield of just about 2.0%.
In order to seek higher levels of income, many investors have looked to MLPs and traditional higher yield segments in order to achieve a higher income level. Usually, this leads investors to stocks in segments like utilities, telecoms, and real estate which are ever popular choices for those seeking market-beating yields.
While taking an individual security approach to this space could be a great way to achieve a higher level of income, an ETF technique could be another way to go. This strategy ensures diversification across a market segment so that if one security flounders, the overall portfolio return isn’t too negatively impacted (read 11 Great Dividend ETFs).
For investors seeking to apply this to their portfolio, we have highlighted three sector ETFs below which can provide investors with a yield easily above what we are seeing in the broad S&P 500. These funds could also be considered lower risk securities at this time as well as potential ways for investors to round out their portfolio during these uncertain market conditions:
Vanguard Telecom Services ETF (VOX)
Telecoms are usually a top pick for yield due to their oligopolistic market and the relatively small growth level that is left for firms in this area. Due to this, many just focus on maintenance and service, leaving plenty of cash to be paid out on a regular basis to income-hungry investors.
A top yield choice in this corner of the market is Vanguard’s ultra low cost VOX. The ETF charges just 19 basis points a year in fees and has a yield approaching 3.3% in 30-Day SEC terms.
Investors should note, however, the fund is extremely focused on VZ and T as these two account for over 40% of assets combined. Beyond these two giants, there are about 33 other stocks in the basket with many coming in the mid cap and micro cap spaces.
iShares FTSE NAREIT Real Estate 50 ETF (FTY)
Real estate, and specifically the REIT industry, is usually considered a top destination for yield. That is because this segment, in order to avoid double taxation, is obligated to pay out at least 90% of income to shareholders, often making them top dividend payers (see Three Small Cap ETFs with Impressive Yields).
While there are a number of decent yielders in the real estate space, an interesting and relatively concentrated choice could be FTY. The product charges investors 48 basis points a year in fees, has average volume, and pays out roughly 3.55% in 30-Day SEC terms.
Despite the fact that the fund holds just over 50 stocks in its basket, it does an admirable job of dividing up assets as Simon Property (SPG) is the only stock to receive more than 7% of assets at 10.9%. Exposure is also well spread around the various REIT segments, as retail, residential, office/industrial, and health, all make up at least 13% of the fund each.
Utilities Select Sector SPDR (XLU)
Much like telecoms, utilities operate in a low competition segment, although theirs arguably has even less competition than what investors see in the telecom market. Due to this and their low growth prospects, utilities have also become a top yield destination for many investors looking for extreme levels of stability.
There are a few solid choices in the utility ETF space but one of the biggest and most popular is XLU. This fund, which charges just 18 basis points a year in fees, has over $5.7 billion in AUM and nearly 6.5 million shares a day in volume, along with a robust yield of 3.86% in 30-Day SEC terms (read Three Overlooked High Yield ETFs).
The ETF holds about 33 stocks in its basket and it is focused in on electric utilities for most of its exposure. Still, assets are well dispersed as five stocks make up more than 6% of the fund but no one company makes up more than 9.5% of assets, suggesting a relatively well spread out profile for this ETF.
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ISHARS-FN RE50 (FTY): ETF Research Reports
SIMON PROPERTY (SPG): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VIPERS-TELE SVC (VOX): ETF Research Reports
VERIZON COMM (VZ): Free Stock Analysis Report
SPDR-UTIL SELS (XLU): ETF Research Reports
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