3 Equity ETFs Benefiting From Low Interest Rates
The yield on the 10-year Treasury bond has fallen to new yearly lows this week and is below 2.2 percent for the first time since June 2013.
The concern about a slowdown in Europe has investors contemplating another round of quantitative easing from the Federal Reserve.
Even though the U.S. economy is doing “okay” and the taper is ending this month, the issue with economies around the globe could pressure the Fed to come up with more easing programs.
With rates at such low levels it forces income-minded investors to think outside the box when searching for acceptable yields. There is also the fact that equities appear to be more attractive with the interest rates on Treasuries at a yearly low.
The combination of the two factors points an investor to sectors in the stock market that offer above-average dividend yields.
The SPDR Utilities ETF (NYSE: XLU) has held up very well during the market sell-off and is currently trading 2.2 percent from an all-time high. Since the S&P 500 topped out on 9/19 the ETF is up 0.9 percent versus a fall of 7 percent for the equity index.
The ETF currently has a dividend yield of 3.5 percent and is a basket of 30 U.S.-based utility companies. A low expense ratio of 0.16 percent make the ETF that much more attractive to investors looking to squeeze every penny out of their ETF and dividend.
The iShares Cohen & Steers REIT ETF (NYSE: ICF) is down 2.5 percent from the market high, underperforming XLU but well ahead of the overall market. The ETF is a basket of 30 REITs that pays a dividend yield of 3.2 percent. The ETF is well off its all-time high set in 2007, but is trading about 5 percent from its multi-year high set in 2013. The expense ratio comes in at 0.35 percent.
The SPDR Consumer Staples ETF (NYSE: XLP) is unchanged from the day the market began the sell-off and has been trading in a narrow range. The ETF has a dividend yield of 2.5 percent, which is not historically high; however, it is 30 basis points higher then the 10-year Treasury yield.
Even more impressive is the fact the ETF hit a new all-time high last week as the stock market was breaking down. The ETF is composed of 40 stocks in sectors that range from food & staples to household products to tobacco. The expense ratio is 0.16 percent.
While all three of the ETFs are not the hot investment opportunities in a strong bull market, at this point in time adding them to an equity portfolio is a solid strategy to consider.
More diversification at this point will help weather any downturns in the future and add some steady income.
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