Investors seeking income through ETFs have a difficult time determining where to invest for yield. I like to look at ETF investments from an asset class perspective. This allows investors to identify where to find high yields comparable across different market sectors. I have identified five different investments by asset class, each with a high dividend yield. These assets include: closed end funds, preferred stocks, master limited partnerships, corporate bonds and utilities. Using the Ned Davis Research rating, look to purchase an ETF rated 4 or 5 from the list below. All 3 rated ETFS are considered holds if you already own them. Here is the list of ETFs for consideration.
Closed-end funds (CEFs) were created to provide an income investment for investors. Today, CEFs can be purchased in a variety of asset classes such as equity, preferred stocks, convertible stock, corporate bonds, municipal bonds and other asset classes. The ETF play for CEFs is the PowerShares CEF Income Fund (NYSEARCA:PCEF). This fund is a "fund of funds" as it Includes CEFs that invest in taxable investment grade fixed-income securities, taxable high yield fixed-income securities and others utilize an equity option writing (selling) strategy. PCEF is trading at $25.30 with an 8.13% distribution yield. Year to date, PCEF has a market return equal to the S&P 500's 8.0% return. PCEF has the highest YTD market return of the 5 ETFs listed in this article. PCEF has an expense ratio of 1.5%. It is rated a 4 (best rating is 5) by Ned Davis Research.
Preferred shares have been outperforming for most of 2012, especially because of their high dividend yields. The ETF play for preferred stocks is the PowerShares Preferred Portfolio (NYSEARCA:PGX). The PowerShares Preferred Portfolio (FUND) is based on The BofA Merrill Lynch Core Fixed Rate Preferred Securities Index. PGX has a high concentration of preferred stocks in the financial sector. PGX is trading at $14.45 with a distribution yield of 6.46%. Year to date, AMLP has a market return of 6.2% lagging the S&P 500. PGX is a 4 rated ETF by Ned Davis Research.
Master Limited Partnerships (MLPs) were created in the 1980s to promote energy infrastructure investments. MLPs have tax benefits and pay the majority of their income to investors. The ETF play here is the Alerian MLP (NYSEARCA:AMLP) that invests in 25 energy infrastructure Master Limited Partnerships. Constituents earn the majority of their cash flow from the transportation, storage, and processing of energy commodities. AMLP is trading at $17.00 with a dividend yield of 5.9%. Year to date, AMLP has a market return of 3.4% lagging the S&P 500's 8.0%. AMLP is a 5 rated ETF by Ned Davis Research.
Low defaults and an attractive yield relative to Treasuries have investors piling into junk bond ETFs this year. The ETF play is the iShares iBoxx High Yield Corporate Bond (NYSEARCA:HYG). HYG seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the iBoxx $ Liquid High Yield Index, a corporate bond market index compiled by the International Index Company Limited. HYG is trading at $90.00 with a distribution yield of 7.6%. Year to date, HYG has a market return of 1.7% lagging the S&P 500's 8.0%. HYG is a 3 rated ETF by Ned Davis Research.
Utilities had a nice price increase in 2011 as investors liked their stability and high yield. The ETF play is the Utilities Select Sector SPDR (NYSEARCA:XLU). XLU produced a 19% return in 2011. Year to date, XLU is actually in negative territory despite the 8% gain in the S&P 500. XLU is trading at $35.00 with a distribution yield of 3.9%. Year to date, HYG has a market return of -2.95%. XLU is a 3 rated ETF by Ned Davis Research.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.