High yield ETFs are the exchange-traded funds that invest either in stocks of companies that pay high dividends or in bonds of companies that pay high interest. The ultimate objective of investing in high yield ETFs is to generate stable and high income in the form of dividend or interest payments.
High yield ETFs provide diversified investment opportunities to investors in the sector, geographical region, and industry of their choice. Additionally, they also offer the advantages of low fees and high liquidity as compared to mutual funds and other forms of investment.
Factors to Consider Before Investing in High Yield ETFs
Investors must consider the dividend yield or interest yield as the primary factor before investing in high yield ETFs. The top high yield ETFs have low expense ratios and high rates of return over a long period.
Additionally, it is also critical to consider that as ETFs, in general, are passively managed, they have to match the performance of the benchmark index that the track. Therefore, high yield ETFs may turn out to be highly risky as fund managers have to trade them even in unfavorable market conditions, at low prices.
High yield ETFs are considered to be sustainable sources of income and high dividend and interest yields; however, they are not entirely immune to market conditions. They remain sensitive to the global economy, interest rates, and other parameters and may turn unpredictable at times.
Which High Yield ETFs Should I Buy?
Many high yield ETFs trade on the US stock exchanges. Some invest in equities, while others invest in bonds; some are focused on specific geographical regions, while some invest in the securities of companies belonging to a particular sector or industry. We have compiled a list of the best high yield ETFs for investors to choose from.
In general, the ETFs that have demonstrated high yield historically are mortgage REIT ETFs, MLP ETFs, and super dividend ETFs. Yet, investors must tread with caution and study the fundamentals of the high yield ETFs and economic conditions before investing in them.