We all know the “Three Ds” of investing: diversify, diversify, diversify.
Of course, keeping well-diversified isn’t an easy task. So when you find an investment that simplifies the task, an ETF that makes diversification a priority, it may be worth holding on to.
In that vein, today I’ll give you the skinny on a style of ETF that could lighten your diversification load…
Enter multi-asset income ETFs, which are exactly what the name suggests – ETFs that seek income by investing in more than one class of assets.
You see, most funds specialize in one asset class, like bonds or stocks. But multi-asset income funds tend to invest in several different asset classes.
This gives you exposure to varying types of investments in a nice tidy package, reducing the amount of legwork an investor might otherwise be obligated to do.
Here are two such multi-asset ETFs worth considering:
Guggenheim Multi-Asset Income ETF (CVY): CVY invests in American depositary receipts (ADRs) that pay dividends, real estate investment trusts (REITs), master limited partnerships (MLPs), closed-end funds (CEFs), Canadian royalty trusts and preferred stocks.
First Trust Multi-Asset Diversified Income Index Fund (MDIV): Like CYV, MDIV spreads its holdings over half a dozen asset classes, but with a few divergences. Currently, it invests in dividend-paying equities, MLPs, REITs, preferred securities and high-yield corporate bond ETFs.
What’s interesting here is MDIV’s allocation to high-yield corporate bond ETFs, which represent 15.43% of the portfolio. This is almost entirely thanks to an investment in another ETF, the iShares High Yield Corporate Bond ETF (HYG).
Although one ETF investing in another ETF may seem strange, it’s perfectly sane. It should only raise a red flag if you already own HYG, which could cause you to be over-concentrated in that position.
There are other multi-asset income funds to choose from, including newcomers like the SPDR SSGA Income Allocation ETF (INKM), the iShares Morningstar Multi-Asset Income Index Fund (IYLD) and the Arrow Dow Jones Global Yield ETF (GYLD).
Plus, Guggenheim recently introduced the Guggenheim International Multi-Asset Income ETF (HGI).
It’s benchmarked to the Zacks International Multi-Asset Income Index and invests in international securities, including some other holdings like American depositary receipts of emerging market companies and U.S.-listed closed-end funds that invest in international companies.
And the Pay-Off Is…
When it comes to payouts, there’s no slacker in the bunch.
CVY sports an attractive yield of 5.21%, while MDIV yields 7.07%; HGI, 4.43%, INKM, 4.03%; IYLD, 5.14%; and GYLD, 6.37%.
Simply put, you could do a whole lot worse.
Bottom line: As with all investments, the key is to know what you have and know what you’re getting into.
Diversification, especially, always means something different for different portfolios, so check out the individual allocations of these ETFs to compare them to your present holdings.