Looking for Current Income? 5 ETFs to Earn At Least 3% Yield

Sanghamitra Saha

Enjoying solid current income has become a really tough task in the current rock-bottom yield environment. The key reason is meager interest rates from government bonds. The Fed has cut rates to zero and has also been pursuing an unlimited QE program to fight the coronavirus-led slowdown.

The situation is almost the same in other countries with the likes of European Central Bank (ECB), Bank of Japan (BoJ) and Bank of England (BoE) following extremely low rates and bond buying programs. Several emerging economies have also been following an ultra-easy monetary policy.  The ECB and BoJ, in fact, have a negative rate policy in place.

As of Jul 9, 2020, the benchmark U.S. treasury yield was 0.62% while the real benchmark yield was negative 0.77%. Real yields have been negative for all the maturities’ periods including 5-year, 7-year, 10-year, 20-year and 30-year.

One solution to deal with record-low interest rates could be investing in securities that still offer sizable and benchmark-beating yields. However, the coronavirus outbreak made matters tough with many companies cutting or halting dividends while many high-yielding dividend stocks are putting up awful equity returns. 

In such a scenario, investors may be interested in securities that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the easy ways to ride out the volatile times. After all, high-yielding ETFs provide investors avenues to make up for capital losses, if that happens at all.

Below we highlight a few ETFs that offer at least 3% yields and have offered decent price performance in the past four weeks. These ETFs not necessarily hail from the equity sector. They are a mix of asset classes. The options are as follows.

Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) – Yield 3.65%

The Quadratic Interest Rate Volatility and Inflation Hedge ETF is actively managed and seeks to achieve its investment objective primarily by investing, directly or indirectly, in a mix of U.S. Treasury Inflation-Protected Securities and long options tied to the shape of the U.S. interest rate curve.

AUM: $310.7 million

Returns: Up 8.49% (YTD); Down 0.01% (Past 4 Weeks)

SPDR Portfolio Corporate Bond ETF(SPBO) – Yield 3.11%

The fund measures the performance of the investment grade corporate bond market which includes publicly issued, investment grade, fixed-rate, taxable, U.S. dollar-denominated corporate bonds issued by U.S. and non-U.S. industrial, utility, and financial institutions.

AUM: $200.0 million

Returns: Up 6.98% (YTD); Up 3.07% (Past 4 Weeks)

VictoryShares US EQ Income Enhanced Volatility Weighted ETF CDC – Yield 3.00%

The underlying Nasdaq Victory US Large Cap High Dividend 100 Long/Cash Volatility Weighted Index tactically reduces its exposure to the equity markets during periods of significant market declines and reinvests when market prices have further declined or rebounded.

AUM: $560.7 million

Returns: Down 6.12% (YTD); Down 1.73% (Past 4 Weeks)

Invesco Variable Rate Preferred ETF VRP – Yield 4.96%

The underlying Wells Fargo Hybrid and Preferred Securities Floating and Variable Rate Index is a market capitalization-weighted index designed to track the performance of preferred stock, as well as certain types of hybrid securities that are functionally equivalent to preferred stocks from U.S. or foreign issuers and that pay a floating or variable rate dividend or coupon.

AUM: $1.39 billion

Returns: Down 6.40% (YTD); Up 1.09% (Past 4 Weeks)

FlexShares Quality Dividend Defensive Index Fund QDEF – Yield 3.66%

The underlying Northern Trust Quality Dividend Defensive Index is designed to provide exposure to a high-quality, income-oriented portfolio of long-only U.S. equity securities, with an emphasis on long-term capital growth and a targeted overall beta that is generally between 0.5 to 1.0 times that of the Northern Trust 1250 Index that are selected based on expected dividend payment and fundamental factors.

AUM: $432.9 million

Returns: Down 11.20% (YTD); Up 1.90% (Past 4 Weeks)

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