Income Strategies: Finding the Right ETF to Achieve the Objective
In an unpredictable macroeconomic and market environment, advisors are shifting their focus toward income generating strategies. Nasdaq recently surveyed over 450 financial advisors to better understand how their investment decisions are adapting to the changing market environment. Nearly half of all respondents (48%) said that their average income allocation increased this year, compared to last year.
Why are advisors moving toward more income focused strategies?
One key finding the survey revealed is that financial advisors are using income generating strategies in multiple asset classes and investment vehicles to achieve a total return, not just to generate a paycheck.
What role does the income portion of your portfolio play?
Let’s explore some of the options available for investors interested in an income generating approach.
Given the emphasis on the total return investment approach, dividend equities may be a prime area of interest. The Nasdaq’s Dividend Achievers indexes include companies that have consistently awarded shareholders with increasing dividend payouts, meaning they’re specifically designed with total return in mind.
First Trust Rising Dividend Achievers ETF (RDVY) seeks to track the Nasdaq US Rising Dividend Achievers™ Index(NQDVRIS™). It includes securities determined to have increased their dividend value over the previous three year and five year annual periods, while being best positioned to continue the dividend increases.
Invesco Dividend Achievers ETF (PFM) seeks to track the Nasdaq US Broad Dividend Achievers™ Index (DAA™). It comprises a diversified group of U.S. securities with at least 10 consecutive years of increasing annual regular dividend payments.
For those focused on a consistent income stream, critical for payment replacement, a noteworthy ETF is Strategy Shares Nasdaq 7HANDL Index ETF (HNDL). This product, which seeks to track the Nasdaq 7HANDL™ Index (NQ7HANDLTL™), was designed to provide a monthly distribution targeting a 7% annualized payout. HNDL could be of interest to investors seeking regular income to pay bills, especially if they are no longer working, and a strategy for managing the drawdown of their assets in a tax efficient way.
Finally, investors may want to add a ballast to their portfolio, specifically seeking to mitigate downside risk – without sacrificing upside potential. The Global X Nasdaq-100 Covered Call ETF (QYLD) tracks the CBOE Nasdaq-100 BuyWrite V2™ Index (BXNT™). The strategy holds Nasdaq-100 Index® stocks and writes (sells) options simultaneously. Additionally, the Global X Nasdaq 100 Covered Call & Growth ETF (QYLG) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the CBOE Nasdaq-100 Half BuyWrite TM Index (BXNH TM). stocks and writes (sells) options simultaneously. Additionally, the Global X Nasdaq 100 Covered Call & Growth ETF (QYLG) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the CBOE Nasdaq-100 Half BuyWrite™ Index (BXNH™).
As interest continues to grow in the income space, advisors have more options to invest in income generating strategies than ever before. In wading through the possibilities, advisors and investors alike should carefully consider the product’s methodology to ensure it’s designed with their desired outcome in mind. If you’re interested in integrating income into your portfolio, now may be the time to consider one of these investment vehicles.
Some dividend-focused ETFs help investors generate income while diversifying their portfolios across market capitalization segments, asset classes, themes and regions. Some additional strategies to consider include:
- Invesco BuyBack Achievers ETF (PKW) seeks to track the Nasdaq US Buyback Achievers TM Index (DRBTM). It consists of U.S. securities issued by corporations that have effected a net reduction in shares outstanding of 5% or more in the trailing 12 months.
- Invesco International BuyBack Achievers ETF (IPKW) seeks to track the Nasdaq International Buyback AchieversTM (DRBXUS TM). It is composed of international securities, excluding the U.S., issued by corporations that have affected a net reduction in shares outstanding of 5% or more in the trailing 12 months.
- VictoryShares Dividend Accelerator ETF (VSDA) seeks to track the Nasdaq Victory Dividend Accelerator TM Index (NQVDIV TM), a diversified portfolio of securities that are forecasted to grow dividends. The index selects 75 securities from the Nasdaq US Large Mid Cap Index based on factors such as dividend growth, liquidity and other financial metrics.
- First Trust Multi-Asset Diversified Income Index ETF (MDIV) seeks to track the Nasdaq US Multi-Asset Diversified Income™ Index (NQMAUS™). It comprises securities classified as U.S. equities, U.S. Real-Estate Investment Trusts (REITs), U.S. preferred securities, U.S. master-limited partnerships (MLPs) and a high-yield corporate debt ETF.
- First Trust Nasdaq Technology Dividend TM Index (TDIV TM) seeks to track the Nasdaq Technology Dividend™ Index (NQ96DIVUS™), which includes up to 100 technology and telecommunications companies that pay a regular or common dividend.
- Invesco Canadian Dividend Index ETF (PDC), listed on TSX, seeks to track the Nasdaq Select Canadian Dividend™ Index (NQCADIV™). It comprises Canadian securities with at least five consecutive years of the same or increasing annual regular dividend payments.
- Invesco High Yield Equity Dividend Achievers ETF (PEY) seeks to track the Nasdaq US Dividend Achievers 50™ Index (DAY™), which includes the top 50 securities by dividend yield from DAA.
- Invesco International Dividend Achievers ETF (PID) seeks to track the Nasdaq International Dividend Achievers™ Index (DAT™). It comprises non-U.S. incorporated securities with at least five consecutive years of increasing regular dividend payments.
- First Trust SMID Cap Rising Dividend Achievers ETF (SDVY), which seeks to track the Nasdaq US SMID Cap Rising Dividend™ Index (NQDVSMR™). It comprises securities in the small mid cap space that have increased their dividend value over the previous three year and five year annual periods. These companies are best positioned to continue the dividend increases.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
