Income ETFs

Investing in income ETFs can be an effective strategy for generating income from an investment portfolio. But, as with any investment strategy, it's important to understand exactly what ETFs for income are before committing. An income ETF is a publicly traded fund that holds a diverse portfolio of income-producing assets such as dividend stocks and bonds.

These funds aim primarily to provide high distributions to investors, while capital appreciation is considered a secondary objective. Put simply, they offer a convenient and efficient way to access a variety of income-generating investments, and this makes them popular for income-focused investors.

Here, you'll find more information about income-generating ETFs, giving you a clearer idea of the advantages and disadvantages, making it possible to decide if this is the right investment route for you.

Global X provides a lineup of ETFs that are tailored to meet various investment needs, each of which is focused on delivering a consistent income stream through diversified holdings.

• S&P/ASX 200 Covered Call Complex ETF (AYLD)
• Australian Bank Credit ETF (BANK)
• Nasdaq 100 Covered Call Complex ETF (QYLD)
• USD High Yield Bond ETF (Currency Hedged) (USHY)
• USD Corporate Bond ETF (Currency Hedged) (USIG)
• US Treasury Bond ETF (Currency Hedged) (USTB)
• S&P 500 Covered Call Complex ETF (UYLD)
• S&P/ASX 200 High Dividend ETF (ZYAU)
• S&P 500 High Yield Low Volatility ETF (ZYUS)

Reliable performance over time is one of the most important factors to consider when it comes to evaluating income ETFs. Below, you will find information on the top three performing income ETFs over the past year, each of which offers its own unique investment objectives.

S&P 500 High Yield Low Volatility ETF (ZYUS)

The Global X S&P 500 High Yield Low Volatility ETF (ASX: ZYUS) is designed to provide exposure to the high dividend-yielding companies in the S&P 500 Index with lower overall volatility. By focusing on high yield and low volatility using ZYUS index methodology, this ETF aims to offer more stable returns compared to the broader market.

As of the latest data, the S&P 500 High Yield Low Volatility ETF has shown a solid performance, with a year-to-date trailing return of 8.6% (ZYUS), 8.4% (Index), and 17.8% (S&P 500). It also has an impressive five year performance of 5.8% (ZYUS), 5.4% (Index), and 16.2% (S&P 500).

Why Invest in the S&P 500 High Yield Low Volatility ETF?

• Stable Income Stream: This ETF focuses on companies with strong, consistent dividend payments, offering a reliable income stream in the process.
• Reduced Risk: By targeting low volatility stocks, this ETF helps reduce the investment risk associated with market volatility and fluctuations.
• Diversification: As it provides exposure to a broad range of sectors within the S&P 500 (utilities, consumer staples, real estate, energy, and others), you are offered a diverse stock selection all in one fund.

USD High Yield Bond ETF (Currency Hedged) (USHY)

The Global X USD High Yield Bond ETF (Currency Hedged) (ASX: USHY) aims to provide higher income than investment grade or government bonds by investing in a diversified portfolio of U.S. dollar-denominated high yield corporate bonds. The currency hedging feature helps mitigate the impact of currency fluctuations on returns for Australian investors.

In terms of performance, this ETF has reported a year-to-date trailing return of 1.3% (USHY) and 1.6% (Index), and a 1.8% (Index) five year trailing return.

Why Invest in the USD High Yield Bond ETF (Currency Hedged)?

• High Yield Bonds: This ETF targets high-yielding corporate bonds, offering attractive income potential.
• Currency Hedging: The hedging strategy reduces potential risk over currency, which provides more stable returns for Australian investors.
• Credit Diversification: By investing in a broad array of bonds in corporate sectors (communication services, consumer discretionary, industrials, energy, and others), this ETF reduces exposure to the credit risk of individual issuers.

S&P/ASX 200 Covered Call ETF (AYLD)

The S&P/ASX 200 Covered Call ETF (ASX: AYLD) combines the benefits of high-yielding Australian companies with an income-enhancing covered call strategy. This approach involves holding a portfolio of the S&P/ASX 200 Index stocks and selling call options on these stocks to generate additional income. It also offers franking credits.

The year-to-date performance of the S&P/ASX 200 Covered Call ETF is 6.2% (AYLD), 6.4% (Index), and 4.8% (S&P/ASX 200 Index), while the five year performance stands at 8.0% (Index) and 8.6% (S&P/ASX 200 Index).

Income ETFs work by investing in an index which tracks income-generating assets such as a basket of dividend-paying stocks, fixed income like corporate bonds, investment grade bonds and government bonds, and other interest-bearing securities.

Investors receive distributions, usually in the form of dividends or interest payments, which are paid out at regular intervals. The ETF structure allows them to be traded on a stock exchange just like individual stocks, providing liquidity and ease of access.

Investing in income ETFs with Global X is simple, and can be done through an online trading account, stockbroker or financial adviser.

After researching our lineup of ETFs and selecting which fund may best suit your investment goals, use its ticker code to identify it on a stock exchange. Be sure to read the relevant PDS and TMD.

Get more information on how to invest with Global X.

ETFs have some unique features which make them an accessible vehicle for investors to gain exposure to a range of underlying holdings such as fixed income, dividend paying, and covered call strategies. These include:

Diversification Income ETFs provide exposure to a broad range of securities, reducing the risk associated with individual investments. By spreading investments across various asset classes and sectors, ETFs help mitigate the impact of poor performance in any single security.

Income Generation These ETFs are designed to deliver regular income through dividends and interest payments, and this steady income stream can be particularly appealing to retirees or those seeking to supplement their earnings or investment portfolio with reliable cash flow.

Liquidity Being traded on stock exchanges, income ETFs offer higher liquidity, making it easy to buy and sell shares. This feature ensures that investors can quickly access their funds when needed, unlike some other income-generating investments that may have lock-in periods or limited redemption options.

Cost Efficiency ETFs typically have lower expense ratios compared to mutual funds, making them a cost-effective investment option, and the passive management style of many ETFs reduces costs, allowing investors to keep more of their returns.

Flexibility Investors can choose from a variety of income ETFs to match their risk tolerance and income objectives. Whether seeking high yield bonds, dividend-paying stocks, or a mix of different asset classes, there is likely an ETF that meets the investor's needs.

As with any investment, there are some considerations to be across before adding any income ETFs to your portfolio and past performance does not guarantee future performance. Please read the relevant product disclosure statement and target market determination before investing. These risks include:

Interest Rates Changes in interest rates can affect the value of income-generating assets, potentially impacting an ETF’s performance. For example, when interest rates rise, the value of bonds typically falls, which means ETFs which hold bonds generally decline in market value.

Credit Risk Credit risk occurs if a bond issuer 'defaults', meaning they are unable to pay back the capital and interest on that bond. This may affect an ETF if one or more bonds that it holds defaults, potentially resulting in reduced returns or a loss.

Market Risk As with all listed investments, market performance can impact an ETF’s value. This includes economic changes, geopolitical events, or market sentiment shifts that can lead to volatility in the prices of the assets held by an ETF — in turn, impacting an ETF's net asset value (NAV), ability to pay dividends, or reduce its overall yield.

Liquidity Risk While ETFs are generally liquid, there can be times of lower liquidity, especially for less popular funds. This can make it harder to buy or sell shares at desired prices, potentially affecting the timing and pricing of trades.