Published:
April 14, 2008
The
correct answer is
(E.) 14.6%That's right, as of
the end of March, the highest yield
offered by an ETF was a whopping
14.6% -- seven times the average
yield on the S&P 500. Even better,
thanks to the diversification of
ETFs, this yield is considerably
more secure than those offered by
individual stocks. With the
combination of yields and safety,
it's no wonder income investors
can't get enough of exchange-traded
funds.
But broad diversification isn't the
only reason ETFs are considered safe
-- their avoidance of leverage is
also beneficial. Many other types of
funds use leverage -- that is, they
borrow money at short-term rates to
invest. They may also use complex
derivatives (futures, swaps, and
options) to ratchet up their
exposure to the market. Leverage can
give these funds more bang for the
buck, but it also adds risk. When
markets sell off and credit is hard
to get, leverage can intensify
losses and lead to dividend cuts --
something most high-yield ETFs can
avoid.
And don't think ETFs with
eye-popping yields are just diamonds
in the rough. Today, there are
scores of safe ETFs for the
yield-hungry investor to choose
from. In a recent issue of her
income-investing newsletter,
High-Yield Investing, editor
Carla Pasternak went on the hunt for
high-yielding exchange-traded funds.
Her results were phenomenal: a total
of 16 ETFs with yields above 6% --
and each of these yields is safer
than those offered by most
individual securities.
To learn more about
High-Yield Investing,
including how to access the names of
the high-yielding, high-safety ETFs
that Carla highlighted in her recent
issue (including the special ETF
yielding 14.6%), please
visit this link.
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