ETF Talk: New Fund Offers High Income, Capital Appreciation

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

A new exchange-traded fund (ETF) that has gained my attention for the dual way it can help you profit is the iShares Morningstar Multi-Asset Income Index Fund (IYLD). The fund specifically seeks to replicate the Morningstar Multi-Asset High Income Index, a broadly diversified index that aims to deliver high current income and long-term capital appreciation.

With the Dow Jones Industrial Average falling for a fifth-straight day yesterday that featured its biggest one-day drop so far this year, the fund offers a way to protect your money from the full force of a sustained market retreat due to its payment of a dividend. However, the fund only began trading on April 3, so it has not paid a dividend yet and thus has little track record to share with you.

In addition, the fund’s trading volume is too light for me to consider recommending it at this time. However, the trading volume should increase quickly as the fund becomes better known. As a result, it definitely is worth watching.

The Index that this fund is designed to track consists of a comprehensive set of iShares ETFs that collectively target equity, fixed income and alternative income sources. The fund’s composition is weighted toward bonds, roughly 55%, but also includes a significant percentage of equities, approximately 20%. Specifically, the holdings on April 9 featured: domestic fixed income, 45.31%; cash and collateral, 25.32%; domestic equities, 14.85%; international fixed income, 9.68%; and international equities, 4.84%.

The top five holdings in IYLD, also as of April 9, were: iShares IBoxx Corporate Bond Fund (HYG), 19.56%; iShares Barclays 20+ Year Treasury Fund (TLT), 15.38%; iShares S&P Preferred Stock Index Fund (PFF), 14.85%; iShares Dow Jones Select Dividend Index Fund (DVY), 14.80%; and iShares IBoxx Investment Grade Corporate Bond Fund (LQD), 10.37%. Those funds are some of the largest and best known offered by iShares. In fact, I have recommended some of those funds in the past in my two investment newsletters, Successful Investing and High Monthly Income, and in my weekly trading service, ETF Trader. The fund’s diversification also is aided by holding 1,888 different positions.

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[youtube_sc url="http://youtu.be/LGZIBfg_ry8"]
The equity markets are down so far in April. Yes, you read that right; stocks have finally shown that they do, in fact, sell off from time to time. Although stocks were up early in today’s session, the major indices have suffered their first five-day losing streak in what seems like forever. The recent selling definitely is the first substantive pullback in stocks since the beginning of the year.
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