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New BDC ETF is a Pure Play on High Yield Income

Market Vectors ETF Trust just launched the Market Vectors BDC Income ETF (NYSE: BIZD), the first exchange-traded fund (ETF) designed to provide pure-play exposure to business development companies (BDCs).

BIZD is currently trading at $20.29 and will pay quarterly dividends and annual capital gains.  The initial dividend amount has not been announced yet but the index has a dividend yield of 7.6%.

Business development companies have traditionally been high-yielding, making them an attractive choice in today’s ongoing search for income.  Investing in BDCs provides exposure to private companies that many investors could not otherwise access, allowing for potential growth and yield generation.

The new ETF will try to reflect the performance of the Market Vectors U.S. Business Development Companies Index, which tracks U.S. publicly traded BDCs. The Index’s market capitalization break down includes mid-caps 49.4% and small-caps 50.6%. The underlying index also has an average weighted dividend yield of 7.60%.

To be eligible for the index, a BDC must also have a market capitalization in excess of $150 million, a three-month average daily trading volume of at least $1 million, and a minimum trading volume of 250,000 shares each month in the previous six months.

BIZD has 25 holdings and its top holdings include Ares Capital (ARCC) 16.0%, American Capital (ACAS) 14.8%, Prospect Capital (PSEC) 7.5%, Apollo Investment (AINV) 6.1% and Triangle Capital (TCAP) 4.9%.

BDCs’ principal business is to lend capital or provide services to privately-held companies or thinly-traded U.S. public companies. To qualify as a BDC, a company must be organized under the laws of, and have its principal place of business in the U.S.; be registered with the Securities and Exchange Commission; and have elected to be regulated as a BDC under the Investment Company Act of 1940 (“the 40 Act”).

WisdomTree Enters Monthly income Club

WisdomTree announced that all six ETFs in its U.S. dividend series will pay distributions on a monthly rather than quarterly basis. The move is designed to accommodate investors who want a steadier stream of income.

The asset manager changed the distribution schedule for WisdomTree Total Dividend Fund (DTD) 2.7% yield, WisdomTree LargeCap Dividend Fund (DLN) 2.72% yield, WisdomTree MidCap Dividend Fund (DON) 2.74% yield and WisdomTree SmallCap Dividend Fund (DES) with a 3.38% yield.

The four ETFs are scheduled to make their first monthly distribution on ex-date Nov. 26, according to a press release.

Two other ETFs, WisdomTree Dividend ex-Financials Fund (DTN) 3/1% yield and WisdomTree Equity Income Fund (DHS) 3.45% yield, switched from quarterly to monthly dividend distributions in July 2012.

 

4 ETFs with High Dividend Yields for Income Investors

If your primary goals when investing are capturing a solid income stream and getting a decent yield on your money, then traditional debt instruments such as Treasury bonds, CDs and money market accounts haven’t been very kind to you of late.  If you’re unsatisfied with the paltry platter of yield served up by the Fed, then you need to check out the menu of high-yield exchange-traded funds (ETFs).  Here are 4 ETFs to satiate the appetite of hungry income investors.

iShares FTSE NAREIT Mortgage Plus Capped Index Fund (REM) seeks to track the price performance of the underlying holdings in the FTSE NAREIT All Mortgage Capped Index.  REM has a dividend yield of 11.63%.  REM is up 14.39% year to date.  Top holdings include: (NLY) Annaly Capital Management Inc; (AGNC) American Capital Agency Corp; (CIM) Chimera Investment Corp; (MFA) MFA Financial Inc; and  (STWD) Starwood Property Trust Inc.

PowerShares KBW High Dividend Yield Financial Portfolio (KBWD) seeks to track the price performance of the underlying holdings in the KBW Financial Sector Dividend Yield Index.  KBWD has a dividend yield of 8.99%.  REM is up 11.54% year to date.  Top holdings include: (AGNC) American Capital Agency Corp; (IVR) Invesco Mortgage Capital Inc; (CIM) Chimera Investment Corp; (NLY) Annaly Capital Management Inc ; (MFA) MFA Financial Inc.

The investment objective of the Peritus High Yield ETF (HYLD) is to generate a high current income with a secondary goal of capital appreciation. HYLD is sub-advised by Peritus Asset Management, LLC.  Peritus seeks to achieve the Fund’s objective by selecting a focused portfolio of high yield debt securities that, via their coupons, generate a high current income stream.  HYLD has a dividend yield of 7.69%.  REM is up 8.55% year to date.

Powershares CEF Income (PCEF) seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S-Network Composite Closed-End Fund Index SM (the “underlying index”). The fund generally invests at least 90% of its total assets in securities of U.S.-listed closed-end funds that comprise the underlying index. It is a “fund of funds,” as it invests its assets in the common shares of funds included in the underlying index rather than in individual securities (the “underlying funds”).  PCEF has a dividend yield of 8.18%.  PCEF is up 7.05% year to date.  Top holdings include: (EXG) Eaton Vance Tax-Managed Global Diversified Equity Income Fund; (ACG) AllianceBernstein Income Fund Inc; (EVW) Eaton Vance Ltd Duration Income Fund; (ETY) Eaton Vance Tax-Managed Diversified Equity Income Fund; (NFJ) NFJ Dividend Interest and Premium Strategy Fund.

Equity ETFs with High Yield Dividends

In order for a company to continue paying a dividend, it must maintain its capacity to pay.  While it is tempting to purchase funds merely because they have high dividend yields, investors must be conscious of the underlying fundamentals of those companies paying those funds because future payments may be slashed.  Current equity price trends are a better indicator of financial health than dividend yields because companies rarely cut dividend payments until they lack the capacity to pay.  However, market participants observe deteriorating fundamentals, causing equity prices to decline.  In order to find companies with competitive dividend yields and improving fundamentals, this screen includes criteria based on increasing revenues, cash flow and book value to ensure that the firm’s ability to pay dividends is not decreasing.

POWERSHARES S&P 500 BUY WRITE PORTFOLIO (PBP) seeks investment results that generally correspond (before fees and expenses) to the price and yield of the CBOE S&P 500 BuyWrite Index.  The fund normally invests at least 80% of total assets in common stocks of the 500 companies included in the S&P 500® Index and writes (sells) call options thereon. The underlying index measures total returns of a theoretical portfolio including the S&P 500 Index stocks on which S&P 500 Index call options are written (sold) systemically against the portfolio through a “buy-write” strategy. The fund will write options that are traded on national securities exchanges. It is non-diversified.

SPDR S&P INTERNATIONAL DIVIDEND (DWX) seeks to replicate, net of expenses, the S&P International Dividend Opportunities index.  The fund invests at least 80% of assets in securities that comprise the index. It invests in ADRs and GDRs that trade on developed market exchanges.  The fund is non-diversified.

ISHARES MSCI EMERGING MARKETS FINANCIALS SECTOR INDEX FUND (EMFN) seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Financials Index. The fund invests generally at least 90% of its assets in securities of the index and in depositary receipts representing securities of the underlying index.

ISHARES MSCI POLAND INVESTABLE MARKET INDEX FUND (EPOL) seeks investment results that correspond generally to the price and yield performance, before fees and expense, of the MSCI Poland Investable Market Index. The fund generally invests at least 90% of assets in the securities of the underlying index and in depositary receipts representing securities of the underlying index.

GUGGENHEIM MULTI ASSET INCOME (CVY) seeks investment results that correspond generally to the performance, before the fund’s fees and expenses, of an equity index called the Zacks Multi-Asset Income Index. The fund invests at least 90% of total assets in securities that comprise the index and depositary receipts representing securities that comprise the index.

The table below shows the detail staistics for ETFs meeting this criteria.

Click to enlarge

High Yield ETFs for the Income Investor

Exchange traded funds (ETFs) outperformed the fund universe in 2011 and will likely continue the trend in 2012.  Investors are looking for safety and yield, and dividend ETFs offer a low-cost, transparent way to invest in a basket of companies and mitigate single-stock risks.  The following screen looked at performance, dividend yield, expense ratio and analyst recommendations.  All of these ETFs are rated a buy or hold by Ned Davis Research.  The list has some interesting ETFs such as:

POWERSHARES S&P 500 BUYWRITE PORTFOLIO (PBP) – seeks investment results that generally correspond (before fees and expenses) to the price and yield of the CBOE S&P 500 BuyWrite Index. The fund normally invests at least 80% of total assets in common stocks of the 500 companies included in the S&P 500® Index and writes (sells) call options thereon.  PBP was recently upgraded by Ned Davis Research on January 6 2012.  PBP has a high yield of 10.16% which must be in the top range of ETFs.

POWERSHARES CEF INCOME COMPOSITE PORTFOLIO (PCEF) – seeks income by being a “fund of funds” by investing in 124 different closed-end funds in various types and strategies.  This is a nice offering for investors wanting to diversify across a significant amount of CEFs without the single-CEF risk.  PCEF price performance has improved over the last 13 weeks but this is an ETF for dividends as it provides a dividend yield of 8.27%.  Top CEF holdings include: EXG, ACG, ETY, EVV, FAX, JQC, ETW, BBN, NFJ and ETJ.

SPDR BARCLAYS HIGH YIELD BOND ETF (JNK) and ISHARES IBOXX $ HIGH YIELD CORPORATE BOND (HYG) provide fixed income ETFs with high yields.  For exposure to preferred stock dividends look at these ETFs: POWERSHARES FINANCIAL PREFERRED PORTFOLIO (PGF); SPDR WELLS FARGO PREFERRED STOCK ETF (PSK; ISHARES S&P US PREFERRED STOCK INDEX (PFF); POWERSHARES PREFERRED PORTFOLIO (PGX).

Here is the list of ETFs passing the screen for high yield ETFs:

List of high yield ETFs for 2012 prepared by getrichinvestments.com

Click to enlarge

ETF Winners and Losers

Last year was generally a period of strong growth for the biggest ETFs in the industry; of the 23 largest exchange-traded products, only three saw net outflows in 2011: GLD, the iShares Emerging Markets Index Fund (EEM), and the iShares Russell 2000 Index Fund (IWM). Four ETFs saw more than $5 billion in new cash in 2011, including SPY, the Vanguard MSCI Emerging Markets ETF (VWO), the iShares MSCI EAFE Index Fund (EFA), and the Vanguard Total Bond Market ETF (BND).

Other ETFs experiencing noteworthy inflows in 2011 highlight some trends among investors during the last year. Vanguard’s Dividend Appreciation ETF (VIG) took in about $4.1 billion, representing almost 90% of assets in the fund at the end of 2010. Dividend-focused products have been in high demand in recent months, as investors seek out tools to boost the current return on their portfolio and scale back risk as well. The Market Vectors Agribusiness ETF (MOO) saw inflows of about $3.7 billion in last year, more than the $2.6 billion in AUM at the end of 2010. Many investors have embraced “indirect” exposure to commodities through the stocks of companies engaged in the extraction and production of raw materials-including many of the ETFs in the Commodity Producers Equities ETFdb Category.

Two head-to-head battles of popular ETFs saw big swings in 2011. The two ETFs linked to the MSCI Emerging Markets Index-iShares’ EEM and Vanguard’s VWO-experienced wildly different fates last year; VWO took in about $7.8 billion in inflows, while EEM saw outflows of almost $6.8 billion. Another iShares ETF, the COMEX Gold Trust (IAU) was on the winning end of its battle with a more established and more expensive competitor. IAU, which holds gold bullion, took in about $2.7 billion in new cash. The Gold SPDR (GLD), which also offers physically-backed exposure to gold-saw outflows on the year of more than $300 million. IAU charges just 0.25%, while GLD has an expense ratio of 0.40%.

Diary of a Monthly Income Plan (INFOGRAPHIC)

Some investors and traders are always searching for that “holy grail” to make their millions in the markets.  These traders look to quantum programs, black boxes, high frequency trading and other sophisticated methods to gain an edge on the market.  At Get Rich Investments,we like to keep investing as simple as possible.  Afterall, we are totally focused on one objective to create monthly income from investing.  We created an infographic, “Diary of a Monthly Income Plan” to show how easy it is to invest for monthly income in today’s market.

Free to embed on other sites using this code:  <embed src=”http://embedit.in/zKy9OYAnO2.swf” height=”400″ width=”466″ type=”application/x-shockwave-flash” allowFullScreen=”true”>

CLICK TO ENLARGE

Diary of a Monthly Income Plan_(Infographic)

How To Trade the CNBC Million Dollar Portfolio Challenge (Part 4)

One key to success is to trade the current trends.  This is true for the volatility of the currency markets.  For those wanting to trade currencies but are not using FX trading, you can use the ETFs for all major currencies in the CNBC Portfolio Challenge.  The best market trend I have found so far is that the U.S. Dollar is rallying over the last month.  Use the PowerShares DB US Dollar Index Bullish Fund (UUP) to go long the Dollar.  This ETF is up 8% in the last month.  Of course, you want this to be a smaller position in your portfolio as the rally continues over the short-term.

PowerShares DB US Dollar Index Bullish Fund (UUP) is a separate series of PowerShares DB US Dollar Index Trust (the Trust).  The Fund’s subsidiary is DB US Dollar Index Bullish Master Fund (the Master Fund), a separate series of DB US Dollar Index Bullish Master Trust (the Master Trust).

The inverse trend is the Euros continued decline.  The ETF play is the ProShares UltraShort Euro (EUO) that is a super-short Euro play.  This ETF is only up a little over 4% in the last month.  However, if any countries in Europe default or increase their possiblilty of default then the EUO will be a great play as it is super short for the EURO.

Both ETFs, UUP and EUO are shown in the chart below.

Click to enlarge

 

 

 

 

 

Also see these articles:

How to trade the CNBC Million Dollar Portfolio Challenge (Part 1)

How to trade the CNBC Million Dollar Portfolio Challenge (Part 2)

How to trade the CNBC Million Dollar Portfolio Challenge (Part 3)

 

Check out the Monthly Income Investing Plan here.

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