This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

An Assault on Yield-Oriented ETFs

NEW YORK ( ETF Expert) -- Are we tiring of the fiscal cliff story? Is it becoming cliche to state the obvious… that uncertainty over the resolution of expiring tax breaks and potential spending cuts is adversely affecting the stock market?

Perhaps. Yet one avenue that hasn’t received as much digital ink is the possibility that “yield” is turning into a dirty word. (It may have five letters, but yield-oriented assets have been performing like four-letter losers!)

Consider what we might typically expect when economic growth is weak; that is, sub-par expansion usually favors income producers. Dividend stocks, utility stocks, master limited partnerships, REITs — each tends to rely less on economic cycles and more on reliable income streams.

However, the current uncertainty surrounding future tax policy is wreaking havoc on income producers. Many have been hit every bit as hard as the broader S&P 500 SPDR Trust (SPY).

High-Yielding ETFs Since Post-Election Selling Spree (11/7-11/15)
Post-Election
Annual Yield % Drawdown %
iShares Mortgage REITs (REM) 12.6% -6.4%
KBW High Dividend Yield Financial (KBWD) 10.6% -8.5%
CEF Income Composite Portfolio (PCEF) 8.1% -7.3%
E-TRACS Wells Fargo Business Dev Co (BDCS) 7.8% -6.4%
Global X Super Dividend ETF (SDIV) 7.2% -4.8%
iShares High Yield Corp Bond (HYG) 6.8% -1.9%
iShares S&P Preferred (PFF) 5.8% -2.1%
Guggenheim Multi-Asset Income (CVY) 5.4% -6.3%
JP Morgan Alerian MLP (AMJ) 5.2% -8.6%
S&P 500 SPDR Trust (SPY) 2.0% -5.0%

Theoretically, of course, the vast majority of assets in the table should have a built-in buffer against downside erosion. The distribution component on yield-oriented ETFs should offset excessive capital depreciation.

On the other hand, the market has presented a different theoretical construct. Specifically, if dividend tax hikes have the potential to be worse than capital gains hikes… can you still afford to hold onto the cash flow generators?

From my vantage point, no asset should be deemed “riskless.” One still needs to employ hedges or stop-limit loss orders to manage all of the ETF asset types, including yield-oriented ETFs.

By the same token, an investor should not wait for calm waters to participate. If you have cash that you’ve been waiting to put to work, and if you do not currently own assets like JP Morgan Alerian (AMJ) or E-Tracs Wells Fargo Business Development Company ETN (BDCS), now might be the perfect time to “get your yield on.” Just make certain that you have an exit plan.

You can listen to the ETF Expert Radio Show "LIVE", via podcast or on your iPod.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

Gary Gordon reads:

Real Clear Markets
Jeff Miller
indexuniverse
Charles Kirk
On Twitter, Gary Gordon follows:

Jonathan Hoenig
Doug Kass
Hard Assets Investor

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
FB $78.81 -0.23%
GOOG $540.66 0.51%
TSLA $230.65 2.00%
YHOO $42.03 -1.10%
AAPL $128.73 -0.17%

Markets

DOW 18,070.40 +46.34 0.26%
S&P 500 2,114.41 +6.12 0.29%
NASDAQ 5,018.37 +12.9790 0.26%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs