Under The Hood: Dividends Beyond Stocks
Actively managed ETFs still account for a percentage of overall exchange-traded products assets and the actively managed space is dominated by just a handful of funds. However, the number of new entrants to the arena continues to expand, giving investors ample opportunity to consider the merits of active management.
Some actively managed ETFs are worth a look for income investors while others provide unique fund of funds exposure allowing investors to gain access to multiple ETFs under one umbrella. Some new actively managed ETFs do both of those things.
One such example is the SPDR SSgA Income Allocation ETF (NYSE: INKM), which debuted in late April and has thus far accumulated almost $8.9 million in assets under management.
INKM is home to just 18 holdings, 17 of which are other SPDR funds. That roster is dominated by some funds ETF investors are no doubt familiar with, including the SDPR S&P Dividend ETF (NYSE: SDY), the PDR Barclays Capital Long Corporate Term Bond ETF (NYSE: LWC) and the and the SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK). That trio constitutes for over 40 percent of INKM's weight.
Other familiar funds found in INKM's lineup include the SPDR S&P International Dividend ETF (NYSE: DWX), the SPDR Wells Fargo Preferred Stock ETF (NYSE: PSK) and the SPDR S&P Emerging Markets Dividend ETF (NYSE: EDIV).
Overall, INKM provides exposure to five asset classes. Equities lead the charge at over 43 percent of the fund's weight while high-grade corporate bonds command an allocation of almost 32 percent. International real estate plays, high-yield bonds and hybrid securities such as preferred stocks account for the rest of INKM's lineup.
That composition speaks to INKM's income-generating potential and the ETF does not disappoint on that front with a 30-day SEC yield of 4.3 percent. Beyond that, most of INKM's holdings, particularly the ones at the top, are heavily traded. That gives the lightly traded ETF sufficient liquidity despite an average daily volume figure that might turn some investors off (just 4,800 shares).
Another advantage regarding INKM that highlights the advantages of active management is that the fund managers can shift to lower-risk securities during times of elevated market volatility. There is a downside, and it highlights an issue facing many actively managed ETFs: Cost.
INKM charges 0.7 percent per year. That is not terrible among actively managed ETFs, but that is a high expense ratio in the overall ETF universe. In fact, owning SDY, LWC and JNK individually would only cost a combined 90 basis points per year, which cements the notion that there is price to pay when dealing with actively managed ETFs.
Remember, some of INKM's fees will eat away at the fund's yield. On the other hand, with investors searching far and wide for yield, some might be willing to pay up for INKM, particularly if the fund can justify its high fees with even higher performance.
For more on income ETFs, click here.
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