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This Multi-Asset ETF With A 10% Yield Could Be Just What Your Portfolio Needs

The inclusion of BDCs, MLPs, REITs and CEFs can actually reduce overall risk when paired with other equities.

The S&P 500 and U.S. Treasuries are still both yielding less than 2% (unless you head way out to the long end of the curve where a 30-year bond can get you a modestly more attractive yield of 2.3%). Junk bond yields, both from U.S. and foreign issuers, are capping out at around 4%. Traditional asset classes just aren't cutting it for investors who are living off of their portfolio's income or simply want something that does better than 2%.

People often look at higher-yielding asset classes, such as BDCs and MLPs, and come to the conclusion that the risk simply isn't worth the high yield, especially given what's happened to the energy and real estate sectors during the COVID pandemic.

But look at the bigger picture and you'll find that these asset classes aren't bad at all when used as a piece in a broader portfolio. In fact, their high yields and low correlations to other asset classes, including stocks and bonds, can actually help achieve LOWER portfolio risk if optimized to manage risk.

Enter the GraniteShares HIPS US High Income ETF (HIPS). It targets four different asset types - BDCs, MLPs, REITs and closed-end funds - in order to achieve diversified exposure to alternative income assets, while delivering yields of 8% or higher.

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GraniteShares HIPS US High Income ETF (HIPS)

HIPS invests in no more than 60 pass-through securities across four economic sectors (REITs, MLPs, CEFs, BDCs). The "pass-through" aspect of the portfolio is important because it allows investors to avoid the double taxation that can occur first through the fund itself and a second time at the individual level. This allows HIPS to have, historically, been one of the higher yielding ETFs in the marketplace.

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How high yielding is HIPS? Currently, the fund offers a forward-looking distribution yield of 9.6%. On top of that, it has also maintained an uninterrupted $0.1075 per share monthly distribution for nearly 6 years.

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Due to the fund's objective of paying monthly instead of quarterly income and the volatility surrounding the its underlying components and sectors, the composition of those distributions can vary. Return of capital is often used to fill in the gap between income generated and the targeted distribution amount.

Returns of capital can be OK if they're supported by other types of gains (capital growth, dividends, etc.) or they can be destructive. As is often the case with CEFs, funds that maintain unsustainable distribution schedules often see their share prices crater as capital is being removed from the asset base and paid out to shareholders.

HIPS has seen its share price decline by about 24% since its 2015 inception. While I believe there's probably some degree of share price degradation in there due to the fixed distribution schedule, I think a lot of it is due simply to the composition of the fund and the sectors it's targeting.

MLPs have had a miserable run over the past 5 years, while BDCs have also produced negative share price returns (although the investment income has pushed total returns into positive territory as is also the case with HIPS). I would expect that once the global economic recovery accelerates in the 2nd half of the year and global energy demand picks up, HIPS should enter a more favorable cycle that works to its benefit.

Right now, HIPS has about 15% of assets dedicated to each of the MLP, BDC and REIT space with over half of the fund going towards CEFs.

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This is an interesting development since very little of the fund's index consisted of CEFs at the time of its launch. In fact, it was REITs that controlled the biggest share of the pie. The composition of the CEFs is notable because it could provide some insight into where the opportunities are at in the current market.

Virtually all of the top 10 positions target either high yield bonds or high income equity securities (whether that's straight high yield securities or using leverage in order to produce a yield). Overall, these funds look fairly well-diversified and cover several areas of the market, which ties in with the fund's objective of "optimized" risk and yield.

That's important to note because many will look at HIPS' targeted investment strategy and assume it's way too risky. While each of these sectors is volatile in isolation, the fund does a pretty good job of providing exposure without overdoing it on risk. In fact, the fund's historical risk level has fallen right in line with both the S&P 500 and the Russell 2000.


Adding a fund with a similar risk profile to an existing portfolio of large-caps and small-caps doesn't necessarily change that portfolio's overall risk profile. If it's another U.S. equity position, you may not be increasing diversity much at all.

The fact that HIPS comes with a similar risk level, but also has a low correlation to traditional asset classes makes it a much better fit in a portfolio. Its inclusion with low correlation assets can actually reduce overall portfolio despite the fact that, in isolation, it may be riskier than the assets it's being paired with.

An opportunity to add a 10% yield while possibly lowering the risk of your portfolio is an opportunity worth considering.


HIPS would probably serve well as a satellite holding to a broader portfolio. Unless you're a risk taker, allocating about 15-20% of a portfolio to liquid alts may be an optimal landing spot.

Plus, investors may be jumping in at the right time. The MLP market certainly looks more optimistic today than it did a year ago and could be poised for a further cyclical rally. BDCs might also fare better in a post-COVID economic recovery. REITs got hammered in the worst of the bear market a year, but certainly look to be improving today.

If you're one of the many investors looking to boost the yield you're generating without looking to add too much risk, HIPS could be worth consideration.

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