Investing

7 ETFs and Closed-End Funds Yielding Over 10%

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Most traditional investors love dividends. After all, over half of all total returns through time have been traced back to dividends. Some investors will go to any length possible to get a higher yield than they can find in Treasuries, blue chip stocks, corporate bonds and traditional municipal bonds. Despite a low interest rate environment, some investors still can actually manage to get yields of 10% or more.

24/7 Wall St. has decided to track seven funds, all either closed-end funds or exchange-traded funds (ETFs), that offer yields of 10% or more. Mutual funds and ETFs are supposed to be safer than individual securities because they diversify their investments much wider than most investors can accomplish. Beware: “supposed to be” and “are” simply do not always match up. These funds are far from safe and many of the yields may simply not hold up or be predictable through time.

Most investors should do hours of research on any one of these before they are willing to commit their assets into them. If the five-year Treasury yield is close to 1.4%, and if the 10-year Treasury yield is still under 2.0%, what does it tell you if a fund is paying a yield of 10% or more? The simple answer is that it is taking a lot more risk. To accomplish this, it might even be taking risk on top of risk due to leverage and derivatives.

Some of these have incredibly high net expense ratios after high management fees and expenses, and many invest in derivatives on top of individual securities. Some of the closed-end funds and ETFs featured here do employ high degrees of leverage and use derivatives, so the risk is more than just a generality.

As you would expect, there are likely no Treasury bonds invested in to speak of. These funds are targeting strategies around high-yield (junk) bonds, master limited partnerships (MLPs), emerging markets, common stocks, options, preferreds and a whole host of other asset classes. Some of these assets will be close to impossible to track, and even the ETFs and closed-ends funds may have tracking errors. These variables and market conditions can allow these to sometimes trade at significant premiums or discounts to net asset value. Again, there is also no assurance whatsoever that these funds will be able to maintain their high dividend payouts.

If investors have any risk aversion at all, they need to be looking elsewhere. When ETFs and closed-end funds can trade at massive premiums or discounts, and when they have tracking error or invest in derivatives that are hard to value (and explain), they just are not suitable for most investors. That being said, there are billions of dollars worth of securities represented here from just these seven funds. There are of course other closed-end funds and ETFs that have yields north of 10%, but many have irregular dividends that are next to impossible to predict through time.

PIMCO High Income Fund

PIMCO High Income Fund (NYSE: PHK) is a rather well-known closed-end fund from PIMCO. It pays a $0.103 monthly payout, but that is lower than the $0.122 normal payout that had been seen from 2003 to 2015. Even the lower payout generates a yield of 13.1%, based on a $9.43 share price.

PIMCO’s High Income Fund had about $820 million in assets. The fund focuses on high current income and normally invests at least 80% of its net assets in speculative grade (junk) debt securities. Due to leverage and due to a tracking issue over the net asset value, this fund trades at a premium north of 40% to its net asset value. Also it has a 52-week trading range of $6.87 to $11.70.

Stone Harbor Emerging Markets Income Fund

Stone Harbor Emerging Markets Income Fund (NYSE: EDF) is an emerging market debt closed-end fund with assets of $232 million. It has a $0.18 dividend per month, generating a yield of 15.6% based on a $13.84 share price. This emerging market ETF has had the same $0.18 monthly payout since its 2011 inception.

Stone Harbor’s fund seeks total return gains from income and capital gains, and it invests at least 80% of its net assets in emerging markets fixed income securities and other instruments, including derivatives. The turnover is high at 89%, and its leverage is about 31%, plus the expense ratio is over 2%. The 52-week week trading range is $9.95 to $17.09.

Kayne Anderson MLP Investment

Kayne Anderson MLP Investment Co. (NYSE: KYN) now pays a $0.55 per quarter dividend, down from a peak of over $0.65. This still generates a yield of 11.5%, although some sources peg the yield as higher because of the past dividends. This closed-end fund does use leverage of more than 40%, but it has seen relatively low turnover of 17%.

Kayne Anderson’s management fees are over 2%, and its expense ratio is high at over 6%, after considering the interest expense and distributions on mandatory redeemable preferred stock. This closed-end fund also has roughly $3.6 billion in assets. The fund has a 52-week range of $10.10 to $34.47.

iShares Mortgage Real Estate Capped ETF

iShares Mortgage Real Estate Capped ETF (NYSEMKT: REM) had its last dividend as $0.274 for the quarter, yielding 10.7%. This ETF generally invests in mortgage real estate investment trusts (REITs) in the FTSE NAREIT All Mortgage Capped Index that invest in mortgage-backed securities. The most recent $0.274 dividend generates a yield of 10.7%, based on its $10.23 share price.

This iShares ETF recently was talked up by Jeff Gundlach as an opportunity ahead, and its net assets are about $978 million, with an expense ratio of just under 0.5%. This ETF has traded in a 52-week week range of $7.99 to $11.70.

Eaton Vance Risk-Managed Diversified Equity Income Fund

Eaton Vance Risk-Managed Diversified Equity Income Fund (NYSE: ETJ) has a monthly payout of $0.093, generating a yield of 11.4%, based on a share price of $9.76 for the closed-end fund. This monthly payout is the same going back to the start of 2013, and before that it was a quarterly payout that had been lowered from a peak in 2007 to 2010.

The Eaton Vance fund has $662 million in net assets and invests in common stocks and uses options. Portfolio turnover has been high at 77%. The 52-week trading range here is $8.95 to $11.15.

Guggenheim Strategic Opportunities Fund

Guggenheim Strategic Opportunities Fund (NYSE: GOF) pays $0.182 per month, which generates a yield of 12.4%. based on a $17.56 share price. The closed-end fund will invest in many fixed-income, debt and senior equity securities from a variety of sectors and credit qualities. Investors have close to 10 years of history here as the fund dates back to 2007. This closed-end fund has $306 million in assets and has about 30% leverage to it.

That high 12.4% yield is juiced handily by the leverage used by Guggenheim, and it has over 2% in total expense fees, plus 86% portfolio turnover. This fund has a 52-week week range of $15.00 to $21.38.

YieldShares High Income ETF

YieldShares High Income ETF (NYSEMKT: YYY), from Exchange Traded Concepts Trust, pays a $0.16 monthly dividend. Be advised that this ETF’s dividend payment was lower than the traditional $0.17 payout per month from 2014, and prior to that the monthly payout had briefly been $0.20. The dividend yield, based on an $18.53 share price, is 10.36%.

This ETF seeks to track the price and yield performance of the ISE High Income Index, and it is said to normally invest at least 80% of its total assets in securities of the index. The YieldShares site shows that the ETF has about $87 million in assets and a 1% expense ratio. Its 52-week week trading range is $13.82 to $21.33.

Pricing and dividend data, as well as the 52-week ranges and trading history, have been taken from Yahoo! Finance. Other data (NAV, assets, leverage, expenses, holdings, turnover and strategy) have generally been taken from the Closed-End Fund Center (CEFA.com). Some data on ETFs and funds was taken from each fund group’s own website.

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