The Fed essentially confirmed last week that it plans on holding the Fed Funds rate near 0% through at least the end of 2023. That rate doesn't necessarily link directly to yields on Treasury bonds, corporate bonds and equities, but it does suggest that the government won't be doing anything in the foreseeable future to help income seekers earn higher rates.
That means judiciously scouring the investment landscape for high yields while not overexposing yourself to unnecessary risk.
Fortunately for income seekers, there are still several ETFs out there targeting attractive sectors or strategies that should be considered in 2021. All involve different degrees of risk, but they can all provide a level of income far above what you'll find in traditional fixed income products.
Here are five high yield ETFs to consider adding to your portfolio for 2021.
Energy Select Sector SPDR ETF (XLE)
The energy sector isn't one that's traditionally a high yielder, but the current environment has suddenly made it one. Beaten down share prices have pushed the yield on this fund all the way up to 5.5%.
Of course, that yield comes with a degree of risk. We've seen several energy companies cutting or suspending their dividends altogether in 2020. While most of the dividend reductions have probably already occurred, there's still the risk that more are coming, which could cut this yield again. More than 40% of this ETF belongs to ExxonMobil (XOM) and Chevron (CVX), so watch these two names closely.
iShares Emerging Markets Dividend ETF (DVYE)
Emerging markets is one of my favorite plays for 2021. This fund offers an intriguing combination of both capital growth potential and high yield.
DVYE targets 100 high yield stocks from a universe of more established names. Emerging markets, in general, are expected to deliver above average growth in 2021 and valuations are especially discounted right now relative to the S&P 500. This fund currently yields 6.8%.
Nationwide Risk-Managed Income ETF (NUSI)
NUSI is an interesting option because it's not your typical high yield ETF. It starts with a long position in the Nasdaq 100 index and layers on what's called an option collar strategy, which involves at the same time selling a covered call and buying a protective put.
The strategy caps some of the fund's capital growth upside, but also potentially limits some downside. The income generated from the written call ends up exceeding the cost of the put and the difference is paid out to shareholders. Currently, the fund yields 7.8%.
Saba Closed-End Funds ETF (CEFS)
This one is a bit of a cheap because, while it's technically an ETF, it invests solely in a portfolio of closed-end funds. These funds are categorized by their high yields, but also trade at a discount to their underlying NAVs.
CEFS is 85% fixed income and 15% equities, so you're getting mostly a bond portfolio. Some of these funds do utilize leverage, so there's some added risks involved, by shareholders are currently being rewarded with an 8.6% yield.
Arrow Dow Jones Global Yield ETF (GYLD)
GYLD invests in a global portfolio consisting of five subgroups - sovereign debt, corporate debt, equities, real estate and alternatives, such as MLPs. Each group is equal-weighted in order to diversify away some unnecessary risk.
This fund yields an attractive 9.3%.