During the 2010s, as the Federal Reserve kept interest rates at effectively zero, just about the only place you could find yield was in the stock market. Many investors piled into risky retail stocks with big but tenuous dividends, or high-dividend-yield sectors like energy infrastructure, telecom and real estate.
[Sign up for stock news with our Invested newsletter.]
Nowadays, however, with the Federal Reserve targeting a range of as much as 5.5% for short-term interest rates, the average yield of about 1.6% offered by the typical S&P 500 dividend stock is simply not going to cut it.
So the best high-yield ETFs right now mostly land in the fixed-income market, with short-dated bonds being particularly attractive given their ability to respond faster to the changing interest rate environment. But the bottom line is that all seven of these ETFs are worth a look, as all have rock-bottom expense ratios of 0.12% or less, all have $19 billion or more in assets under management, and all offer a yield of 4.9% or better:
| ETF | Assets under management | 30-Day SEC Yield as of Nov. 6 |
| Vanguard Intermediate-Term Corporate Bond Index Fund ETF (ticker: VCIT) | $35 billion | 6.3% |
| iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) | $30 billion | 6.1% |
| SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) | $39 billion | 5.3% |
| iShares Short Treasury Bond ETF (SHV) | $22 billion | 5.1% |
| JPMorgan Ultra-Short Income ETF (JPST) | $23 billion | 5.6% |
| WisdomTree Floating Rate Treasury Fund ETF (USFR) | $19 billion | 5.4% |
| Vanguard Real Estate ETF (VNQ) | $29 billion | 4.9%* |
*Trailing-12-month yield.
Vanguard Intermediate-Term Corporate Bond Index Fund ETF (VCIT)
As the name implies, this fund is focused on corporate bonds with an intermediate maturity. Right now, the typical bond in VCIT’s portfolio of more than 2,000 different bonds has an effective duration of just over six years. This “Goldilocks” approach allows investors to avoid the lower yields in short-term debt and take on a bit more duration risk for bigger yields, but not lock their cash into 20-year or 30-year maturities. Similarly, a focus on only investment-grade corporate bonds gives a bit more yield than U.S. Treasury bonds, without taking on the big risks of junk bonds. That means loans to companies like JPMorgan Chase & Co. (JPM) and Pfizer Inc. (PFE), corporations that may not be 100% certainties but are pretty darn likely to repay investors.
Assets under management (AUM): $35 billion Yield: 6.3%
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
LQD is similar to the prior corporate bond fund in that both hold only investment-grade securities. But this high-yield ETF is a bit different, with a bigger portfolio of nearly 2,700 bonds and a slightly longer duration that averages just over eight years. The general value proposition is the same — the relatively low-risk nature of high-quality corporate debt. The question, then, is whether investors interested in this approach find a better fit in one fund versus the other based on their personal needs.
AUM: $30 billion Yield: 6.1%
[See: 8 Free Investment Classes and Resources for Adults and Teens]
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)
An interesting result of the rapidly changing interest rate environment over the last few years is that short-term U.S. Treasury bond ETFs have seen an explosion in yield. That’s because of the logical trend where short-dated bonds roll off the portfolio faster than five-year or 10-year bonds do — and as a result, are more quickly replaced with assets that offer a bigger payday. There are a few bond funds in this list of high-yield ETFs, but shorter-duration bond funds like BIL have had a unique appeal lately. Just keep in mind that if rates do plateau, the longer-dated funds will eventually catch up — and if yields do drop, BIL will be the first to reflect that downtrend.
AUM: $39 billion Yield: 5.3%
iShares Short Treasury Bond ETF (SHV)
With a tiny list of less than 50 total bonds, SHV is probably the simplest ETF to understand on this list. The fund purchases U.S. Treasury bonds that mature in 12 months or less — then as these bonds mature, it reallocates its assets into the latest offering of short-dated bonds from the government. In a rising-interest-rate environment, these short-dated Treasuries steadily get replaced by higher-yielding bonds as they roll off. Right now, SHV offers more than three times the typical S&P 500 dividend stock despite having a rock-solid risk profile. That makes it very attractive to investors who are worried about market uncertainty in the near term.
AUM: $22 billion Yield: 5.1%
JPMorgan Ultra-Short Income ETF (JPST)
This quirky fund from JPMorgan goes after U.S. Treasury bonds, domestic corporate debt, international bonds and bonds that offer decent yield but have incredibly short life spans. Just how short, you ask? Well, right now the 650 or so bonds in this high-yield ETF have an effective duration of about seven months. Since time equals risk in all asset classes, this offers investors incredible peace of mind. Furthermore, the rising-rate environment allows this portfolio to offer healthy yields despite its very low risk profile.
AUM: $23 billion Yield: 5.6%
WisdomTree Floating Rate Treasury Fund ETF (USFR)
With the Federal Reserve raising rates, so-called “floating-rate” bonds have been attractive to many investors as they quickly price in these moves. Much like floating-rate consumer debt tied to your mortgage or credit card, corporate bonds can be benchmarked to the current rate environment in order to reflect the current state of play rather than a “fixed” rate. USFR has bulletproof Treasury bonds that offer one of the lowest risk profiles out there, but it also has the agility to move its rates higher based on the latest trends.
AUM: $19 billion Yield: 5.4%
Vanguard Real Estate Index ETF (VNQ)
Oddly enough, the largest fund on this list as measured by assets is one of the most focused when it come to the portfolio makeup. This sector-specific ETF from Vanguard offers exposure to 160 real estate companies including warehouse giant Prologis Inc. (PLD), telecom property operator American Tower Corp. (AMT) and self-storage king Public Storage (PSA), among others. As the regular rent checks roll in from tenants, these real estate providers offer a consistent share of that cash back to shareholders via generous and regular distributions. It’s a bit risky to lean on one sector exclusively, but as part of a diversified portfolio this high-dividend ETF may be worth a look.
AUM: $29 billion Yield: 4.9%
More from U.S. News
8 Best High-Yield REITs to Buy
How Much of an Investing Portfolio Should Be in Cash?
The 10 Biggest Tech Companies in the World
7 of the Best High-Dividend ETFs originally appeared on usnews.com
Update 11/07/23: This story was previously published at an earlier date and has been updated with new information.
