10 high-yield ETFs for income-minded investors

These high-yield ETFs show that there's no shortage of ways to balance risk and reward in the quest for better-than-average income.

  • By Jeff Reeves,
  • Kiplinger
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10 High-Yield ETFs for Income-Minded Investors

Like all investing strategies, high-yield ETFs are a bit of a balancing act.

On one hand, stocks that deliver tremendous yield can be enticing because of "guaranteed" paydays that are two times, three times or even five times the typical dividend stock in the S&P 500. This is especially true in an environment of extreme market volatility like we've witnessed so far in 2022.

But the truth is there are no guarantees on Wall Street. Firms that were very generous last quarter sometimes wind up cutting their dividends this quarter or seeing their shares tumble as a result of poor performance.

High-yield ETFs help you defray that risk somewhat by investing across dozens if not hundreds of individual issues. Nonetheless, it's always important to "pop the hood" and see how these funds fit in with your overall portfolio and your personal risk tolerance.

The following list of 10 high-yield ETFs should provide you with a few examples of the alternatives that are out there, and how each strategy balances its risks with potential rewards. With the average yield of the S&P 500 Index at just above 1.3% at present, every one of these funds is well ahead of the game, with yields of at least 4.0% (but many that are much higher).

Data is as of March 31. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.

JPMorgan Equity Premium Income ETF

Assets under management: $7.8 billion

Dividend yield: 7.2%

Expenses: 0.35%, or $35 annually for every $10,000 invested

For many income-oriented investors, the desire for yield also comes along with the desire to have exposure to popular names in the stock market. For those who want to be firmly rooted in the equities markets but generate a bit more income than they would get from the typical stocks on Wall Street, there's the JPMorgan Equity Premium Income ETF (JEPI, $60.80).

This high-yield ETF uses a proprietary approach to find mid- and large-cap stocks that have lower volatility than the broader S&P 500 Index. JEPI holds about 100 of the usual suspects you'd expect to see on a list of dividend stocks, including drugmaker Eli Lilly (LLY) and Coca-Cola (KO) – the latter one of Warren Buffett's favorite stocks.

However, it also employs "covered calls" – options that are sold to collect a premium – on those stocks to supercharge the dividends. Indeed, JEPI throws off a yield more than five times the broader S&P 500!

Perhaps unsurprisingly, there is a trade off here. The options sold on these stocks limit upside if and when the market surges higher. But if you're a low-risk investor that's more concerned with income over the long haul than making a quick 15% or 20% in a few months, this is one of the best high-yield ETFs to consider.

WisdomTree International High Dividend Fund

Assets under management: $199.6.8 million

Dividend yield: 4.7%

Expenses: 0.58%

Another way to get a bit more yield than you'll find in the typical S&P 500 stock is to look beyond America's borders altogether. That's what the WisdomTree International High Dividend Fund (DTH, $39.77) does with a portfolio of global stocks.

To be clear, this is not an aggressive emerging-markets fund. Right now, the top countries by weighting are Japan (18%), Australia (17%) and the U.K. (17%). In other words, you're largely getting big time multinational stocks that just happen to be headquartered outside the U.S.

DTH tracks an index that measures these global companies based on dividend yield and composite risk. Those ranking in the top 30% by yield and 80% by composite risk score are included in the index. The WisdomTree International High Dividend Fund incorporates at least 95% of the stocks that make it into in the index.

The list of DTH holdings is pretty diverse at the moment, with more than 400 total positions that include Australian mega-miner BHP Group (BHP), Swiss healthcare giant Novartis (NVS) and Japanese telecom NTT (NTTYY).

Many overseas stocks can be hard to research or only pay distributions once or twice a year, so domestic investors often overlook them. However, for investors seeking out the best high-yield ETFs, DTH offers a one-stop shop to provide both above-average dividends as well as some geographic diversification.

iShares Mortgage Real Estate Capped ETF

Assets under management: $975.1 million

Dividend yield: 6.1%

Expenses: 0.48%

For investors wanting to take a direct sector bet on real estate, there is the iShares Mortgage Real Estate Capped ETF (REM, $32.67). Regular mortgage checks each month offer a steady stream of cash that can be returned to shareholders from this subset of companies that deal largely in mortgage-backed securities. This is what makes REM one of the best high-yield ETFs.

REM tracks an index that measures the returns of residential and commercial mortgage real estate, as well as mortgage finance and savings stocks in the broader U.S. market.

This is admittedly a niche subsector of the market, so the portfolio is only comprised of 30 or so stocks. These include Annaly Capital Management (NLY) and AGNC Investment (AGNC), stocks that operate more like lenders or financial firms rather than traditional real estate investment trusts (REITs) that own physical property.

While the list isn't that long, the companies are all very generous and the collective dividend yield is much better than other stock-focused ETFs – including broad REIT funds. Consider the Schwab U.S. REIT ETF (SCHH) – a roughly $7 billion ETF focused on all elements of the real estate sector, but one that only generates a paltry 1.7% yield.

In the wake of the 2008 financial crisis, it should go without saying that real estate is not a risk-free sector. And as these mortgage REITs (mREITs) typically borrow a lot of cash to finance their activity, any significant or rapid change in the interest-rate environment could be bad for them. But with a booming residential market in the U.S. and the huge yields here as a hedge, it may be worth a stab at this mortgage-specific income ETF.

Global X SuperDividend REIT ETF

Assets under management: $392.8 million

Dividend yield: 6.5%

Expenses: 0.58%

Another real-estate focused fund worth calling out is the Global X SuperDividend REIT ETF (SRET, $9.19). This ETF focuses on the highest-yielding real estate investments on Wall Street to create a curated list of about 30 total holdings that all offer tremendous paydays.

This list is split 60/40 regular REITs and mREITs, the latter of which deals specifically in paper rather than actual properties. They deal on the financing side of things and typically operate by borrowing a ton of cash, then lending it out at higher interest rates to profit handsomely from the spread. Top holdings at the moment include industrial and retail space operator W.P. Carey (WPC) and casino property owner Gaming and Leisure Properties (GLPI).

When things go well, income-oriented investors will be thrilled. But keep in mind things don't always go well – mREITs especially have a tendency to cut dividends when times are tough.

Diversifying across the fund smooths out a little of that, but investors still should be aware of the potential for volatility that comes with this high-yield ETF.

Alerian MLP ETF

Assets under management: $6.5 billion

Dividend yield: 7.5%

Expenses: 0.90%

Just as you can supercharge your income by focusing on a smaller but higher-yield subsector like real estate, investors can also supercharge their income with this focused energy fund.

The Alerian MLP ETF (AMLP, $38.30) invests in what are commonly known as master limited partnerships, or MLPs. These are special stocks that operate with a favorable tax structure thanks to the capital-intensive nature of their businesses, which commonly include energy storage and transportation.

Top holdings of AMLP include Energy Transfer (ET) and Western Midstream Partners (WES) – so-called "midstream" energy stocks because they neither drill new wells for energy or market finished products. Instead, these businesses just transport oil and gas via pipelines, store it in tanks and terminals, and otherwise connect the explorers with end-users and refineries.

Though more focused than a broad energy fund, in some way this business model is a bit less risky as it doesn't involve as much exposure to market prices for crude oil or natural gas as exploration-and-production firms. These MLPs tend to charge based on the volume they are moving or storing, so demand is important, but it avoids other outside factors affecting energy prices. And with oil in high demand at the moment, AMLP could be one of the best high-yield ETFs out there.

Invesco Global Listed Private Equity ETF

Assets under management: $233.7 million

Dividend yield: 12.5%

Expenses: 1.44%

The Invesco Global Listed Private Equity ETF (PSP, $12.89) explores a strange corner of Wall Street that is populated by hedge funds, private equity and BDCs, or business development companies. Though not as fashionable as energy or real estate in an inflationary environment, this area is typically much more generous when it comes to dividends.

The fund tracks the Red Rocks Global Listed Private Equity Index, which invests in mostly mid- and large-cap stocks whose main operations are to raise capital, invest where they think the opportunities lie, and then throw off a piece of the returns to their investors.

In other words, this Invesco fund is a simple way to get behind the velvet ropes at some elite Wall Street money management firms. And that is where the big income potential from this high-yield ETF comes in, through regular distributions to shareholders.

The fund is concentrated, with 75.3% of the portfolio in financials. Of the roughly 80 stocks that currently make up the Invesco Global Listed Private Equity ETF, direct lending firm Blue Owl Capital (OWL) and investment firm The Carlyle Group (CG) are top holdings.

Admittedly, in an uncertain environment, there's a chance that these asset managers misstep and wind up losing a bundle. But as evidenced by the double-digit yield, most of the stocks in PSP are currently riding an enviable track record that has turned out to be quite profitable for their shareholders.

Amplify High Income ETF

Assets under management: $378.4 million

Dividend yield: 9.9%

Expenses: 2.26%

First things first: This Amplify fund not only charges the greatest fee of the high-yield ETFs listed here, but it's one of the most expensive ETFs you'll find on Wall Street.

That said, it seemingly pays for itself via a high-yield strategy that delivers tremendous income – one that's very hard for the typical retail investor to independently replicate.

Specifically, the Amplify High Income ETF (YYY, $14.95) is a fund comprised of 30 other investment funds. That obviously adds an extra layer to fees, which is part of the reason the expenses are so high. However, if you are looking for a single holding to manage a wide array of high-yield investments so you don't have to, YYY is worth a look.

The ETF is comprised of about 45 closed-end funds (CEFs), which actually trade more like stocks than ETFs in that they have a fixed number of shares. They also have other aces up their sleeve, such as being able to use debt leverage to double down on their investment theses. The current lineup of holdings includes tactical funds such as the Liberty All-Star Equity Fund (USA) and the MainStay CBRE Global Infrastructure Megatrends Fund (MEGI).

Researching closed-end funds is no easy task, but YYY does the legwork for you to offer up a menu of high-yield opportunities it expects to do well. This is definitely a niche play, but is worth researching if you are interested in high-yield ETFs that feature alternative assets for income instead of mainstream bonds or dividend stocks.

Global X U.S. Preferred ETF

Assets under management: $2.3 billion

SEC yield: 5.3%*

Expenses: 0.23%

A sort of hybrid between stocks and bonds, preferred stock is far more stable in its share price than traditional common stock but tends to offer far higher yields than corporate bonds from the same entity.

The downside, of course, is that stability means you don't participate in the big upside of common shares during a big rally like the one we saw at the end of last year. And while the yield is nice, preferred stock is still subordinate to traditional bonds in bankruptcy proceedings so you could see significant losses in the event of default.

In a diversified income portfolio, however, preferred stock could fit in nicely. These shares aren't easy for individual investors to buy directly, but the Global X U.S. Preferred ETF (PFFD, $23.50) provides a simple one-stop shop for you to add a layer of preferreds to your holdings.

The portfolio is biased towards capital-intensive sectors that need to constantly raise money, such as utility stocks with high ongoing maintenance costs or financials that need deep pockets to fund multinational lending and investment operations of their own. However, with roughly 280 preferred stock holdings across very established firms like NextEra Energy (NEE) and Bank of America (BAC), there is a measure of stability despite a focus on a narrow part of the market. * SEC yield reflects the interest earned after deducting fund expenses for the most recent 30-day period and is a standard measure for bond and preferred-stock funds.

iShares Broad USD High Yield Corporate Bond ETF

Assets under management: $6.9 billion

SEC yield: 6.0%

Expenses: 0.15%

When most investors think about fixed-income strategies, they first think about the bond market. Not only can you get a bit more yield here – as mentioned, the 10-year Treasury currently yields 2.3% while the S&P 500 yields just 1.3% – you also can diversify your portfolio and reduce your risk.

But the typical bonds may not cut it amid red-hot inflation. That means investors wanting high-yield ETFs will need to look beyond rock-solid government bonds and into the corporate sector where loans extended to less-than-perfect companies can still command significant interest rates.

That's what the iShares Broad USD High Yield Corporate Bond ETF (USHY, $38.67) – by focusing on high-yield bonds, or "junk" bonds, in common parlance – can achieve.

USHY has a higher risk profile, to be sure, but it is a well-established fund with roughly 2,100 individual bonds in its portfolio to ensure a good measure of diversification. Current positions include loans to second-tier telecom T-Mobile (TMUS), automaker Ford Motor (F) and hospital operator Tenet Healthcare (THC) to name a few. These are good examples of how bond offerings to less-stable corporations can command big-time yield.

Vanguard Emerging Markets Government Bond

Assets under management: $3.0 billion

SEC yield: 5.3%

Expenses: 0.20%

If you'd rather not rely on struggling U.S. corporations, the Vanguard Emerging Markets Government Bond ETF (VWOB, $69.86) offers a decent alternative in the high-yield bond marketplace.

As the name implies, this fund targets sovereign debt of emerging-market economies. That means that while there is a measure of certainty here, as all governments have a powerful revenue-generating tool in the ability to increase taxes, there is more risk and volatility than you'd see in established western economies.

Like the aforementioned corporate junk bond fund, VWOB looks to offset some of this risk through a deep and diversified array of some 760 sovereign debt holdings across nations like Mexico, Saudi Arabia and Indonesia.

The fund also includes bond offerings to state-run outfits like oil giant Petroleos Mexicanos that are a bit more stable than traditional private firms, as they have government backing to keep them afloat if things get tough.

This infographic was designed by Avalaunch Media

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