The Global Guru: Three Income Investments Shooting the Lights Out in 2016
First Flight to Cuba Takes Off… and So Does a 20-Year Boom
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If there’s one thing investors are searching for in 2016, it is income.
Sure, the stock market is having a positive year, with the S&P 500 eking out a gain of 7.68% year to date.
However, with returns flat since the post-Brexit vote bounce and the S&P 500 trading where it first did on July 13, the market’s returns have an air of stagnation about them.
There is, however, one factor that has driven the price of some assets across the globe higher. And that is the payment of income on a regular basis.
In a zero-interest-rate world, investors have to expand their investment horizons in terms of where they put their money to work if they want to hear the metaphorical cash register ring each month or quarter.
Now, I am completely agnostic when I look at income-generating investments.
That is why I follow income-producing investments across a wide range of sectors and strategies. These include everything from U.S. Real Estate Investment Trusts (REITs), to Business Development Companies (BDCs), to Exchange-Traded Fund (ETF) strategies that generate steady income by selling calls against the S&P 500.
Money is money, and I am as indifferent to its source as is my brokerage account.
With that, here are the three top performers among the income-generating investments that I regularly track -- though, perhaps sadly, I am not invested in any of them myself.
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1. iShares Emerging Markets Dividend ETF (DVYE) -- up 25.65%
Although emerging markets do not get much press these days, this hated asset class is having one of its better years in recent memory, with the MSCI Emerging Markets Index up 19.34% year to date. So perhaps it is not surprising that iShares Emerging Markets Dividend ETF (DVYE) is the top performer among the dozens of income generating strategies I track.
Specifically, the iShares Emerging Markets Dividend ETF tracks the Dow Jones Emerging Markets Select Dividend Index -- a dividend-weighted index of high-dividend-paying emerging markets companies.
Unlike emerging markets ETFs that track large-cap companies in market-cap-weighted indexes, DVYE’s focus is far narrower, holding 100 of the highest-yielding stocks from emerging markets.
By selecting and weighting companies based on dividend yield, mid- and small-cap companies end up making up most of the fund. This results in underweighting energy and financials and in overweighting dividend-paying utilities. In terms of countries, DVYE also underweights Russia and China, and instead overweights Taiwan and Brazil.
DVYE’s expense ratio is on the high side at 0.49%. It currently yields a solid 4.61%, paying dividends on a quarterly basis. With assets of close to $260 million, this ETF is unlikely to disappear any time soon.
2. Global X SuperDividend® REIT ETF (SRET) -- up 21.22%
The Global X Super Dividend REIT ETF (SRET) tracks a global index of REITs, selecting the highest-dividend-yielding companies while screening out the most volatile ones.
Don't let the "global" in the name fool you. Close to 87% of this ETF's assets are based in the United States. This is primarily a domestic U.S. Real Estate Investment Trust ETF, with a dash of foreign exposure.
SRET weights its 30 constituents differently from its segment peers in two distinct ways: dividend selection and equal weighting. The fund selects 30 REITs from all over the world (but mostly the U.S.) on the basis of the highest dividend yield. SRET also weights the 30 REITs it selects equally, making it the only fund of its type not to weight its holdings by market cap. As a result, SRET has a distinct small-cap bias.
Finally, despite being on this list of top performers for the year, SRET has pulled back close to 5% over the past month, highlighting the volatility of this asset class.
SRET’s expense ratio stands at 0.59%. It currently yields an attractive 8.57%. SRET also makes distributions on a monthly basis, providing a regular source of income for a portfolio. In terms of assets under management, SRET is small -- only $32 million. So there is a chance that it may not survive an eventual culling of low-asset ETFs.
3. Oppenheimer Ultra Dividend Revenue ETF (RDIV) -- up 19.37%
The Oppenheimer Ultra Dividend Revenue ETF (RDIV) tracks an index that selects the 60-highest-yielding securities from the S&P 500 and S&P 400. It ranks them by the average 12-month trailing dividend yield in each of the previous four quarters and then weights them equally.
This selection and weighting methodology generates a unique portfolio with large sector tilts. The fund also produces a high portfolio yield, but at the cost of a small cap bias. Moreover, with only about 60 holdings, the fund's sectoral bets can change quickly. Still, with its assets 100% located in the U.S., this universe of stocks may give some risk-averse investors some comfort.
Impressively, the index on which this relatively new ETF is based has yielded an average of 14.76% over the past five years. Over a three-year period, it has outperformed the S&P 500 by about 3% -- making it one of the top-performing “smart beta” funds in the market.
RDIV’s expense ratio is 0.49%. It currently yields 3.44%, paying dividends on a quarterly basis. With assets of close to $195 million, this ETF seems safe from imminent extinction.
P.S. For specific advice about the best investments to buy right now, subscribe to The Alpha Investor Letter. One of my investment newsletter’s recommendations has beaten the Dow 11 to 1 over the past 29 years. I encourage you to subscribe and learn about that amazing, wealth-producing stock by clicking here.
In case you missed it, I encourage you to read my e-letter column from last week about the chances of a stock market crash, as predicted by Donald Trump. This article, and many other past columns from The Global Guru, can be found on StockInvestor.com. I invite you to bookmark the site and follow it on Facebook and Twitter.
Nicholas A. Vardy
Editor, The Global Guru
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