In today’s world of negative-yielding government bonds, many investors have had to get a little more innovative in their search for yield. These two ETFs can help.
The first invests in Canadian preferred shares, hybrid investments that act a little like stocks and a little like bonds.
Claymore S&P/TSX Canadian Preferred Share ETF (TSX:CPD) is the leader in the world of preferred share ETFs in Canada. It has 231 different holdings, a trailing dividend of 5%, and a market cap exceeding $1 billion..
The management fee is a reasonable 0.45%, and preferred shares of Canada’s banks dominate the top holdings. Other top holdings include preferred shares from Fortis and TransCanada.
The yield may go down a bit in the future because many holdings are rate reset preferred shares, which are scheduled to reset in the next couple of years at lower rates.
Another way for investors to get attractive yields is to look at so-called junk bonds, which tend to be dangerous on their own but considerably less so in a portfolio.
BMO offers an ETF tracking the sector in the United States, the BMO High Yield U.S. Corporate Bond ETF (TSX:ZHY), which is hedged to Canadian dollars.
ZHY is incredibly diverse, with 482 different bonds in its portfolio. Approximately 75% are from companies in the United States, with the other 25% mostly in Europe. It paid a dividend of 6.4% over the last 12 months, but like with the Claymore ETF, this is likely to fall slightly over time.
The ETF has a management fee of 0.55%, and with a market cap of more than $1 billion, it has enough volume most investors can get in and out easily.
