By Michael Johnston:
ArrowShares has made its first plunge into the ETF industry, announcing the launch of an ETF that targets high yielding securities in a number of different asset classes. The new Dow Jones Global Yield ETF (GYLD - News) will be linked to an index that includes 150 of the highest yielding securities across three primary asset classes: stocks, bonds, and alternative investments (including REITs and MLPs).
The underlying portfolio will consist of five different allocations, each weighted at 20%. Those include:
- Global Equities
- Global Sovereign Debt
- Global Corporate Bonds
- Global Real Estate (including REITs)
- Global Energy-Related Investments (including preferred stocks of energy companies, royalty income trusts, and MLPs)
Each of these allocations will, in turn, be comprised of about 30 different securities, resulting in a balanced portfolio consisting of 150 securities (with no individual stock or bond receiving an allocation of more than about 1%). In other words, GYLD can be seen as a "one stop shop" for investors seeking to capture meaningful current returns. That objective has been increasingly popular – and challenging – in the current low rate environment. GYLD combines many of the common destinations for yield hungry investors into a single portfolio, bringing along some diversification benefits as well as an impressive yield.
"The prevailing low interest rate environment has made it extremely challenging for income-oriented investors to generate substantial yield via traditional means," says Joseph Barrato, CEO, Arrow Investment Advisors. "The Arrow Dow Jones Global Yield ETF provides an exchange traded solution designed to boost the yield play in an investment portfolio."
There are dozens of ETFs now available that are designed to offer exposure to high yielding asset classes such as REITs, MLPs, junk bonds, and dividend-paying stocks. But most of the existing offerings focus only on a single asset class; GYLD will be unique in that it holds a diversified portfolio that includes stocks, bonds, and alternative investments.
The result is a portfolio offering an attractive yield opportunity; at the end of the first quarter, the underlying index had a composite yield of approximately 7.4%. That yield has generally ranged between 7% and 9% over the last year.
| Sub Category | Yield |
|---|---|
| Global Equity | 5.82% |
| Global Real Estate | 6.45% |
| Global Alternative (Energy) | 7.91% |
| Global Corporate Debt | 7.88% |
| Global Sovereign Debt | 9.09% |
| Composite | 7.43% |
| As of 3/31/2012 |
The allocation to MLPs, while meaningful, will be below the 25% threshold that triggers potentially unfavorable structural requirements. Existing ETFs that hold exclusively MLPs, such as [[AMLP]] and [[MLPA]], must elect to be treated as C-corporations for tax purposes. That can result in an additional layer of taxes that most other ETFs manage to avoid.
Under The Hood
The United States is the largest country allocation in the underlying index, representing about 40% of the portfolio. Other large allocations include Australia (7%), Singapore (4%), Hungary (3%), and Portugal (3%). In total, there are more than a dozen countries represented, including both emerging and developed economies.
From a currency perspective, GYLD offers plenty of diversification as well. The U.S. dollar represents about 56% of assets, followed by the euro (17%), Australian dollar (7%), and Singapore dollar (4%). Other allocations include the British pound, New Zealand dollar, South African rand, Hong Kong dollar, and Canadian dollar.
Financials, including real estate, represent about 28% of assets. Other large allocations include telecom (16%) and energy (13%).
The underlying equal-weighted index will be rebalanced quarterly and reconstituted annually. GYLD will charge an annual expense ratio of 0.75%.
Disclosure: No positions at time of writing.
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