With the Reserve Bank of Australia yesterday lowering interest rates (again) to their lowest levels ever (again), its becoming harder and harder to derive an income from anything that isn't shares or property. Fixed-interest investments, term deposits, and savings accounts are now starting to (metaphorically) resemble a mattress in terms of uses for your cash. During these times, it's a good idea to think outside the box and get your yields from a wide range of sharemarket instruments.
Here are 2 ASX exchange traded funds (ETFs) that might be worth a look if you need something better than bedding to put your money.
Vanguard International Credit Securities Index ETF (ASX: VCF)
This ETF from Vanguard holds a portfolio of high-quality investment-grade bonds from around the world. There are no government bonds held, but bonds from government-guaranteed or -owned entities are included, as well as corporate bonds rated BBB- or higher. The lack of government bonds helps add some yield without too much extra risk and makes this ETF a good way to get some exposure to yield-bearing debt instruments, in my opinion. VCF has a running yield of 2.98% and has returned 6.25% over the past year, which isn't a bad result. VCF has a management cost of 0.3% per annum.
iShares S&P/ASX Dividend Opportunities ETF (ASX: IHD)
This ETF is run by BlackRock (the largest asset manager in the world) and invests in a portfolio of 50 high-yielding Australian equities. Why own one dividend-payer when you can own 50 in one share? The beauty of an index fund like IHD is that you will only ever find high-yielding companies in your holdings. If a company ceased to pay a dividend, it will be dropped from the ETF and replaced with another who will. IHD's current top holdings include South32 Ltd (ASX: S32), Alumina Ltd (ASX: AWC) Commonwealth Bank of Australia (ASX: CBA) and Wesfarmers Ltd (ASX: WES). IHD has a nice trailing yield of 7.23%, pays distributions quarterly, and also has a management fee of 0.3% per annum.
Foolish takeaway
With either of these two ETFs, you have a good choice for income (in my opinion). VCF would be a good way to get exposure to some of remaining the bonds that are paying a decent yield, but IHD has a very nice income paid quarterly – so not exactly Sophie's choice with these ETFs!
