You don't need to open an account at an obscure bank, chase unlisted securities or buy shaky S&P 500 stocks to score a 9.49% yield. Turns out there's a plump yield up for grabs in ETFs.
Virtus InfraCap US Preferred Stock ETF, available at any online brokerage firm, sports an SEC yield of 9.49%, says Morningstar Direct. That's the highest yield of any actively traded bond and income ETF. It beats the 5% paid by high-yield savings accounts less than 2% yield of the S&P 500.
Yes, it's riskier than cash. But it's a great time to start looking for higher yields as interest rates on savings are coming down. Investors roundly expect the Federal Reserve to cut short-term interest rates sometime later this year.
"A big cut in rates will most likely have an unwanted negative effect as highly popular money market yields will fall," says Mark Malek, chief investment officer at Siebert. "Sorry cash lovers, your time in the sun is coming to an end."
How To Grab A 9.49% Yield
What is Virtus InfraCap US Preferred Stock? It's an ETF that owns a variety of preferred stock securities. Preferreds are a sort of hybrid of stocks and bonds. And their yield looks especially appealing now.
Like bonds, preferred stocks typically pay higher yields than what's available on common shares of stock. And these payments can precedence in the order of claims to common shareholders.
But at the same time, preferred stock dividends are like common stock in that they're not contractually guaranteed. They can be paused at any time. And that's why they make sense in an ETF form. By buying one preferred stock ETF, you're spreading your risk of dividend pauses across many issuers. Virtus InfraCap holds positions in more than 200 preferred stocks.
Its largest position, 3.7% of the portfolio, is in Regions Financial. And that preferred stock position yields nearly 7%. The ETF's next largest position is a 3.5% weight in SLM, a school loan company, yielding 7.3%.
The ETF so far this year offers more than just a pretty yield. Shares are up an additional 5.4% this year. One point to watch out for, though, is the ETF's annual fee of 2.5% is high and doesn't make sense if yield drop too much.
Other Ways To Lock In Huge Yields
What if preferred shares aren't your thing? There are other options for high yields — namely senior loans.
The SPDR Blackstone Senior Loan ETF yields 8.4%. It owns high-quality loans made to companies. The largest position out of more than 500 is a loan to privately held Allied Universal. But it's only 1.9% of the fund's portfolio, making the risk of individual loans very small.
The fund's fee is lower than Virtus InfraCap US Preferred' s at 0.7% annually. But it's not as much of a growth play, either. The price-only value of the ETF's shares is down 0.5% this year.
So even with yields, you don't get something for nothing.
Biggest Yields Out There
Top SEC yields from actively traded bond and income ETFs
| Name | Ticker | SEC yield | YTD |
|---|---|---|---|
| Virtus InfraCap US Preferred Stock | PFFA | 9.49% | 5.41% |
| Panagram BBB-B Clo | CLOZ | 9.13 | 1.76 |
| SPDR Blackstone Senior Loan | SRLN | 8.40 | -0.54 |
| Virtus Seix Senior Loan | SEIX | 8.39 | -0.69 |
| Invesco Senior Loan | BKLN | 8.07 | -1.16 |
| FlexShares HY Val-Scrd Bd | HYGV | 8.05 | 1.10 |
| First Trust Senior Loan | FTSL | 7.92 | -0.35 |
| Xtrackers USD High Yield Corp Bd | HYLB | 7.83 | 2.57 |
| Pacer Pacific Asset Fltng Rt Hi Inc | FLRT | 7.74 | 0.75 |
| Franklin Senior Loan | FLBL | 7.62 | 0.12 |
