Investments for Income-Lovers
In this four-part series, I'll be taking a look at some of the best investments around for adding yield to your portfolio. In Part 1, I looked at two solid income-producing actively managed stock funds. Part 2 highlighted some first-rate high-yielding exchange-traded funds, and Part 3 focused on bond ETFs for yield-seeking fixed income investors. To wrap up this series, today I'll turn to some alternative funds for boosting yield. These are investments that focus on areas beyond the basic asset classes, giving investors more corners of the market in which to find yield.
iShares S&P U.S. Preferred Stock Index ETF (NYS: PFF)
While preferred stocks are generally an afterthought in the equity market, they do have one characteristic that makes them especially valuable for many investors -- generally high yields. Since preferred stockholders have a claim on a company's dividends that are senior to those of common stockholders, preferred stocks can be a reliable source of income payments. The iShares S&P U.S. Preferred Stock Index ETF is an excellent choice for gaining wide exposure to this segment of the market.
This fund invests in roughly 240 preferred stocks, the majority of which come from the financial sector. As of the most recent data available, approximately 84% of assets were concentrated in the diversified financials, banks, real estate, and insurance sectors. This concentration could be cause for concern, but since preferred stocks have characteristics of both stocks and bonds, they are generally less volatile than common stocks.
For example, in the depths of the financial crisis in 2008, this fund only lost 23.6%. That's a lot, but much less than the S&P 500 Index's 37% stumble. The fund also outperformed the S&P 500 by a similar margin in 2009's recovery market. With a healthy 12-month trailing yield of 6.5%, this preferred stock ETF can play an important role in any income investor's diversified portfolio.
iShares Dow Jones U.S. Real Estate ETF (NYS: IYR) While a fair number of investors have been scared away from investing in the real estate market in recent years, odds are the worst is behind the industry at this point. Not only can real estate serve as a diversification tool within your portfolio, but it can also help serve up a reasonable yield. With a fairly low 0.47% expense ratio, the iShares Dow Jones U.S. Real Estate ETF is one of the more inexpensive ways to get broad exposure to the real estate market. The fund invests in the stocks of real estate holding and development companies as well as real estate investment trusts (REITs).
Over the past 10-year period, the fund has posted an annualized return of 9.6%, and while that return isn't terribly impressive among real estate funds in general, this fund is still one of the cheapest and easiest ways to get access to this market segment. In addition, the ETF's trailing yield of 3.6% is nothing to sneeze at.
As recent history has shown, real estate can be a volatile asset class -- just look at this fund's cumulative 51% loss from 2007-2008. And investors shouldn't expect the outsized gains of 2009 and 2010 to repeat themselves again in the near future. However, for investors with a long-term outlook and a willingness to hold on through some short-term bumps, this fund can be a strong ally in helping to build the income-producing potential of your portfolio.
Guggenheim Multi-Asset Income (NYS: CVY) If you're in the market for a go-anywhere investment option with income generation as a primary consideration, you may want to give this fund a second look. Guggenheim Multi-Asset Income tracks the Zacks Multi-Asset Income Index which invests in income-yielding securities around the globe.
To this end, the fund invests in regular old common stocks, but also includes REITs, master limited partnerships (MLPs), preferred stocks, and closed-end funds in its available investing universe. The resulting portfolio is a wide blend of income-generating investments from all over the world. Given the fund's 12-month trailing yield of 5.2%, I'd say the fund has been fairly successful in its mandate.
While fund performance has been pretty solid with the fund ranking in the top quartile of all large-cap value funds over the most recent five-year period, volatility is a key feature here. The fund lost 41% of its value in 2008, only to claw back with a 50% gain the following year.
Given its higher risk profile, very conservative types should probably steer clear. With an expense ratio of 0.78%, Guggenheim Multi-Asset Income also isn't cheap for an exchange-traded fund. While the fund is still much less expensive than similarly managed active funds, it's stretching the boundaries of affordable for passive ETFs. However, in small doses, this fund could be a good portfolio diversifier, as well as a good income-booster, for investors willing to take on a slightly higher level of risk.
Trying to squeeze yield out of your investments in such a low-interest rate environment can be frustrating. But there are ways to crank up your portfolio's income power without wading too deeply into risky waters. This series has highlighted several investment options that nearly any investor can use to make their portfolio work harder at generating much-needed income.
Reaching your retirement goals will require more work than just investing in the best income-producing investments around. Our newest special free report highlights theshocking truth about your retirement. Don't miss this chance to grab your free copy of thiscan't miss reporttoday!
At the time this article was published Amanda Kishis the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein.Tryany of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.