There are a growing number of exchange-traded funds (ETFs) for investors to choose from on the Australian share market.
This even includes funds that are designed to generate passive income.
This is good news for income investors that don't have time to research the market and just want an easy way to invest.
But which ASX ETFs could be good options for them? Let's take a look at three options they have. Here's what you need to know about them:
Image source: Getty Images
Vanguard Australian Shares High Yield ETF (ASX: VHY)
The first ASX ETF that could generate passive income is the Vanguard Australian Shares High Yield ETF.
This fund is filled with many of the biggest forecast dividend yields available to investors on the Australian share market, based on broker research.
It is important to note that the fund doesn't just buy banks and miners, which traditionally provide the biggest yields. It has diversity in mind and ensures that its 65 holdings come from all corners of the market.
This includes miners and banks such as BHP Group Ltd (ASX: BHP) and Commonwealth Bank of Australia (ASX: CBA), but also companies like intellectual property services company IPH Ltd (ASX: IPH), toll road operator Transurban Group (ASX: TCL) and retail giant Harvey Norman Holdings Limited (ASX: HVN).
The Vanguard Australian Shares High Yield ETF currently trades with a trailing dividend yield of 5%.
Betashares Australian Top 20 Equity Yield Maximiser Fund (ASX: YMAX)
Another ASX ETF that could be a great option for income investors is the Betashares Australian Top 20 Equity Yield Maximiser Fund.
It aims to produce attractive quarterly income and reduce the volatility of portfolio returns through a covered call strategy over a portfolio of the 20 largest blue chip shares listed on the Australian share market.
Betashares notes that call options are actively managed and are written with terms of one to three months and strike prices that are expected to be approximately 3% to 7% above the then current market prices of the securities. By writing these call options, YMAX receives option premiums which are expected to provide an additional source of income for YMAX and a partial hedge against a decline in the value of the share.
Betashares has recommended the ASX ETF as one to buy to counter falling dividend yields. It notes that it "performs well in a neutral or gradually rising market." At present, it trades with a trailing dividend yield of 6.3%.
Betashares FTSE RAFI Australia 200 ETF (ASX: QOZ)
A third ASX ETF to look at for passive income is the FTSE RAFI Australia 200 ETF.
BetaShares also recently recommended this ETF one to buy to counter falling dividend yields. It notes that it uses a fundamental indexing strategy which is designed to screen for stocks based on their merits rather than market capitalisation.
It then ranks and invests in these companies accordingly. The end result is investors holding stocks that have healthier balance sheets and a greater capacity to pay dividends.
The Betashares FTSE RAFI Australia 200 ETF currently trades with a trailing dividend yield of 4.4%.
