Seeking Alpha
, LinkedIn (13 clicks)
Portfolio strategy, ETF investing, long-term horizon
Profile| Send Message|
( followers)  

We are in a "new normal" environment with a future of low returns and high volatility. The S&P 500 has moved more than 3% in a single day 7 times so far this year, vs. once in 2007 and 23 times in 2009, according to Lawrence McDonald, author of A Colossal Failure of Common Sense. The Fed is pledging to keep short-term interest rates near zero through mid-2013. In this low-yield world, there are still plenty of large ETFs offering decent yields.

Large ETFs with Yields Higher Than 10-Year-Treasury

There are 1,256 ETFs in Yahoo Finance's ETF Center. Of the biggest 50, the following 17 ETFs have higher yields than the 10-year Treasury:

Fund

Net Assets

Yield

Expense Ratio

SPDR Barclays Capital High Yield Bond (NYSEARCA:JNK)

7.33B

10.2%

0.40%

iShares iBoxx $ High Yield Corporate Bd (NYSEARCA:HYG)

8.90B

8.2%

0.50%

iShares S&P U.S. Preferred Stock Index (NYSEARCA:PFF)

8.10B

7.3%

0.48%

iShares MSCI Brazil Index (NYSEARCA:EWZ)

12.16B

5.6%

0.61%

Vanguard MSCI European ETF (NYSEARCA:VGK)

8.13B

5.2%

0.14%

iShares iBoxx $ Invest Grade Corp Bond (NYSEARCA:LQD)

14.23B

4.6%

0.15%

iShares Barclays TIPS Bond (NYSEARCA:TIP)

21.95B

4.2%

0.20%

Vanguard Intermediate-Term Bond ETF (NYSEARCA:BIV)

12.32B

3.7%

0.11%

Vanguard REIT Index ETF (NYSEARCA:VNQ)

20.99B

3.6%

0.12%

iShares Barclays Aggregate Bond (NYSEARCA:AGG)

12.25B

3.3%

0.20%

iShares MSCI EAFE Index (NYSEARCA:EFA)

39.24B

2.9%

0.35%

Vanguard MSCI EAFE ETF (NYSEARCA:VEA)

8.96B

2.7%

0.12%

Vanguard Value ETF (NYSEARCA:VTV)

15.12B

2.7%

0.12%

SPDR Dow Jones Industrial Average (NYSEARCA:DIA)

9.99B

2.5%

0.18%

Vanguard FTSE All-World ex-US ETF (NYSEARCA:VEU)

14.06B

2.4%

0.22%

iShares Russell 1000 Value Index (NYSEARCA:IWD)

11.22B

2.3%

0.20%

iShares FTSE China 25 Index Fund (NYSEARCA:FXI)

6.77B

2.3%

0.72%

MSCI Brazil Index (EWZ)

Brazil will host the World Cup soccer tournament in 2014 and the Summer Olympics in 2016, which could fuel the country’s economy expansion. Currently Brazil holds record reserves of $350 billion. China is Brazil’s largest trading partner, thanks to its huge demand for Brazilian agricultural and mineral commodities. The following is a comparison between Brazil's and the US' economies:

Metrics

Brazil (EWZ)

USA (NYSEARCA:SPY)

GDP Growth Rate

4%

2%

Unemployment Rate

6%

9%

Interest Rate

12%

0%

P/E Ratio

13

13

Yield

5.6%

2.0%

The recent sell-off in equity markets has pulled valuations down to levels that make it appealing based on fundamental data. However, the following chart from Yahoo shows EWZ is not cheap based on historical prices.

Conclusion

The weakness of advanced economies means markets will remain subject to policy intervention for an indefinite period, distorting asset prices to such an extent that valuations will defy logic and thus heighten volatility. Yields on emerging markets' debt are far higher than most Western bonds, despite the fact that it is actually EM countries that have the most robust balance sheets and therefore are arguably far less vulnerable to default risk, according to an article titled “The Great Rebalancing” published in CFA Institute's July/August 2011 issue.

The same applies to equity markets. With US Congress focused on shrinking the deficit through budget cuts, it is unlikely that the US government could stimulate the economy with new spending. Emerging markets such as Brazil and China have higher growth rates and lower unemployment than the US. Investors could diversify their portfolios by investing in a broad range of emerging-market ETFs with high yields.

Data is from CNBC, Forbes and Yahoo Finance, and is valid as of August 28, 2011.

Source: 17 Large ETFs Yielding Better Than The 10-Year-Treasury