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Income ETFs Attack Low Yields

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Investors have been battling record low yields and a series of new income ETFs might offer some help.

The Market Vectors Preferred Securities ex-Financials ETF (PFXF) was launched and yields 6.8%. The fund is linked to the Wells Fargo Hybrid and Preferred Securities ex-Financials Index, which contains exposure to convertible securities, depository preferred securities and perpetual subordinated debt.

Most preferred stock ETFs, such as the iShares S&P U.S. Preferred Stock Fund (PFF), tend to be top heavy by overweighting companies within the financial sector. PFF, for example, has more than 75 percent of its assets committed to financial companies.

In contrast, the newly launched PFXF excludes financials, such as broker-dealers, banks, futures commission merchants, investment advisers and insurance companies. At the end of June 2012, the top industries within PFXF included REITs, electric, auto manufacturers and telecommunications.

“In developing PFXF, we wanted to offer access to the income potential of preferred securities but limit potential volatility by excluding financials, which has been the most volatile sector in recent years,” said Brandon Rakszawski, product manager with Market Vectors.

PFXF’s dividend distributions are scheduled to occur monthly.

Investing in preferred securities carries risks including the possibility of deferred or suspended distributions, the possibility of declining prices when interest rates rise, and the fact that preferred securities may be subordinate to traditional fixed income securities.

PFXF has a gross expense ratio of 0.52% and a net expense ratio of 0.40%, which is capped at least until Sept. 1, 2013. The cap excludes certain expenses, such as interest.

The Market Vectors are the ETF lineup managed by New York, NY-based asset manager Van Eck Global.

Another new income focused ETF called the Global X SuperDividendETF (SDIV) contains 100 equally weighted companies that rank among the highest dividend yielding equity securities in the world. 

The top three industry sectors within SDIV are telecommunications (20%), REITs (19.36%) and financials (11.58%).

“While there are numerous dividend producing ETFs in the market, SDIV is one-of-a-kind,” said Bruno del Ama, chief executive officer of Global X Funds. “The unique structure and diversification of SDIV provide a very attractive annual yield with lower volatility than comparable dividend ETFs.”

Dividends are distributed on a monthly basis and SDIV carries a 12-month yield of 7.97%. SDIV has annual expenses of 1.14%.