These 3 ETFs Can Generate Income Regardless Of Market Conditions
Investing.com | May 26, 2022 16:39
Fears of a possible US recession have been growing among Wall Street’s analysts, helping push the S&P 500 index to the verge of an official bear market.
As investors accumulate growing losses in their portfolios, the pursuit of stocks that can provide positive returns intensifies. As a result, exchange-traded funds (ETFs) with high yields are in the limelight.
A recent Hartford Funds report :
“From 1930–2021, dividend income’s contribution to the total return of the S&P 500 Index averaged 40%.”
Given the vital role of dividends in total portfolio returns, today’s article introduces three funds that could help generate a passive income stream amidst current market turbulence.
h2 1. Global X MLP ETF /h2- Current Price: $42.00
- 52-week range: $32.29 - $43.45
- Dividend yield: 7.35%
- Expense ratio: 0.45% per year
Master limited partnerships (MLPs) are publicly traded infrastructure assets that do not pay taxes at the corporate level. But at least 90% of their income should come from , such as:
“exploration and production, transportation, and other activities involving any mineral or natural resource.”
As a result of their unique structure, MLPs typically distribute over .
Our first fund, the Global X MLP ETF (NYSE:MLPA), offers exposure to some of the largest midstream MLPs that focus on the transportation, storage, and processing various energy products. It was first listed in April 2012.
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MLPA, which tracks the Solactive MLP Infrastructure Index, holds a portfolio of 20 stocks. With regard to sub-sectors, we have storage and transportation—petroleum (46.2%), gathering & processing (29.4%), and storage and natural gas (24.4%).
The leading 10 holdings account for more than two-thirds of $1.2 billion in net assets. Among them are Enterprise Products Partners (NYSE:EPD), Energy Transfer (NYSE:ET), Magellan Midstream Partners (NYSE:MMP), MPLX (NYSE:MPLX), and Western Midstream Partners (NYSE:WES).
MLPA has returned 19.5% year-to-date (YTD) and 8.5% over the past 52 weeks. Trailing price-to-earnings (P/E) and price-to-book (P/B) ratios are 11.53x and 2.70x.
h2 2. First Trust BuyWrite Income ETF /h2- Current Price: $21.23
- 52-week range: $20.23 - $23.32
- Dividend yield: 9.72%
- Expense ratio: 0.85% per year
Next on today’s list is the First Trust BuyWrite Income ETF (NASDAQ:FTHI). This actively managed fund aims to mainly provide current income investing in US-listed stocks with an overlay of short calls on the S&P 500 index. Therefore, the fund generates premium income by writing (or selling) index options, a strategy we cover regularly. Capital appreciation is a secondary objective of the fund.
FTHI started trading in January 2014. The top 10 stocks account for about a quarter of $45 million in net assets.
In terms of sub-sectors, we see information technology (22.3%), healthcare (13.6%), energy (11.6%), consumer staples (10.6%), and consumer discretionary (8.5%), among others.
Leading holdings include tech giants Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) and copper producer Southern Copper (NYSE:SCCO).
FTHI is down 3.4% since January and 4.3% over the past 12 months. By comparison, the S&P 500 index has lost 16.5% and 6% during these timeframes.
Covered call ETFs are gaining popularity in the current choppy investing scene and deserve your attention. The ETF makes monthly distributions. Trailing P/E and P/B ratios are 14.45x and 2.37x.
h2 3. Schwab US REIT ETF/h2- Current Price: $22.53
- 52-week range: $21.43 - $26.54
- Dividend yield: 0.62%
- Expense ratio: 0.07% per year
Inflationary periods typically lead to increases in the prices of real assets and companies that invest in them, such as real estate investment trusts (REITs). According to a recent by the National Association of Real Estate Investment Trusts (NAREIT):
“REITs provide reasonable protection against inflation because rents are not as sticky as other prices. Long term leases typically have inflation protection built-in, and shorter-term leases are based on current price levels.”
Therefore, our last fund is the Schwab US REIT ETF (NYSE:SCHH) which invests in US-based REITs, excluding mortgage REITs. The fund was first listed in January 2011.
SCHH currently holds 142 stocks, of which, the top 10 names comprise roughly 40% of $6.2 billion in net assets.
Among the leading shares, we see communications infrastructure REITs American Tower (NYSE:AMT) and Crown Castle International (NYSE:CCI); logistics-focused industrial REIT Prologis (NYSE:PLD); data center REIT Equinix (NASDAQ:EQIX); and Public Storage (NYSE:PSA), which owns self-storage facilities.
SCHH is down 14.4% YTD but has returned close to 0.8% over 12 months. Trailing P/E and P/B ratios stand at 38.20x and 3.04x. A further decline toward the $21 level would improve the margin of safety in this broad-based and low-cost ETF.
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