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5 Key Strategies for ETF Income Investors

Stocks in this article: VCSH HYG EMB YYY

One possible alternative that I believe is offering a more attractive value proposition with a comparable yield is the iShares JP Morgan USD Emerging Market Bond ETF (EMB). This ETF sports a yield of just under 5% and is still trading below its 2013 highs.

3. Broaden your horizons to include innovative income strategies

The search for yield can take many forms and some investors are focused on one thing -- high monthly dividends. If that is your primary objective, one new ETF that I believe offers a unique strategy is the YieldShares High Income ETF (YYY). This ETF is a "fund of funds" that invests in a basket of 30 closed-end funds with both equity and fixed-income holdings.

The 30-day SEC yield of YYY currently stands at 8.38% and dividends are paid monthly to shareholders. This unique multi-asset approach offers a strong dividend stream and diversification in one package for aggressive income seekers.

4. Look overseas for higher dividends

As domestic equities hit new highs, many yields on equity-income funds have fallen significantly due to the price appreciation of the underlying securities. To combat this effect, income investors may want to consider an ETF such as the iShares International Select Dividend ETF (IDV).

This fund currently pays a yield of 4.64% and has exposure to 100 dividend stocks of foreign developed nations. Top country weightings include Australia, United Kingdom, France and Germany. The significantly higher yield and diversification outside of the U.S. make IDV an attractive dividend-paying equity holding with the potential for additional price appreciation.

5. Reduce cash holdings

Cash can be used as a short-term hiding spot from the sale of an asset or shelter from the storm. However, hiding out in cash for an extended period of time can significantly hurt your returns because it is paying next to nothing. This is especially true when asset prices are continuing to trade well this year.

I would suggest that if you have a high cash position you look to put the money to work in areas that will allow you achieve your income and growth goals. Even a short-term bond fund can produce a modest monthly income stream without taking excessive risk.

Consider pairing equity, fixed-income, or even alternative asset strategies to balance your portfolio and mitigate specific risks in any one asset class. This can help smooth out volatility and increase your total return over time.

The Bottom Line

Income investors have faced a number of unique opportunities and risks over the last year that have required flexibility to adapt as conditions change. Fortunately, there are a number of excellent choices available through exchange traded funds to access specific themes and avoid potential obstacles. I recently discussed a variety of correlations and opportunities in this video presentation that point out specific trends we are monitoring.

At the time of publication the author had positions in EMB, HYG and IDV.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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