From cash to emerging markets, investors can squeeze more yield from their portfolio if they know where to look.
Not all the exchange-traded funds below have high yield. Some have different roles in portfolio construction and maintenance.iStockThere are two issues with increasing portfolio cash allocations through term deposits. First, the real return from cash is less than annual inflation. Second, term deposits lock money away. More than ever, investors need liquidity and optionality to buy shares and other assets during market falls.
The new VanEck 1-3 Month US Treasury Bond ETF invests in a portfolio of US-dollar-denominated Treasury Bills issued by the US government.TBIL has currency risk, but that could favour Australian investors if our dollar retreats in a “risk-off” market during a correction in global equities.Investing in currencies for income is rarely discussed for retail investors. But ETFs that hold assets in offshore bank deposits can be an attractive source of yield.
Betashares’ Australian Bank Senior Floating Rate Bond ETF allocates 80 per cent of its portfolio to bonds issued by the big-four banks. They can also be converted into equity or terminated early, in some cases. These equity-like features mean hybrids provide a higher return than most debt securities, but they can be complex and riskier.Betashares’ Active Australian Hybrids Fund is an actively managed fund in an ETF structure. It owns 71 hybrids and subordinated bonds. At end-April, HBRD had a gross running yield of 6.51 per cent.
AYLD is a useful tool for investors who seek extra income through options, but don’t want to invest directly in them due to their complexity. This strategy suits investors who believe the ASX 200 will not rally significantly in the near term and is likelier to move up and down in a trading range.Many Australian retail investors are badly “underweight” global equities in their portfolio, favouring local shares due to a home bias and franking credits.
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