CVY overwhelmingly favors equities, and its top three names are Intel, Pfizer and Verizon. At first glance, this doesn’t exactly smack of “multi-asset.”
Note, however, that the CVY’s equity allocation includes substantial stakes in REITs and MLPs, which are excluded from some plain-vanilla equity dividend ETFs. CVY allocates about 8 percent to preferred stocks—those hybrid securities with perpetual cash flows that straddle fixed income and equity.
In contrast, MDIV takes a smaller stake in equities, although it holds more REITs and MLPs than CVY.
MDIV has roughly twice the exposure to preferreds compared with CVY, and has a much larger allocation to high-yield corporate bonds too. MDIV gets its junk bond exposure via another ETF, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG).
In all, CVY’s equity basket looks more like a conventional dividend fund, with slightly lower yield compared with MDIV, but with strong returns powered by a surging equity markets. CVY’s returns seem more susceptible to slumping if the wheels fall off the equity rally.
MDIV meanwhile dials up exposure from other asset classes, which gooses yield as it increases other risks (interest rate, credit risk from junk bonds and tax-uncertainty risks from MLPs).
While neither fund is particularly cheap to hold, MDIV holds the edge on fees, with an annual expense ratio of 62 basis points, compared with CVY’s 77 basis points.
Both funds trade well, consistent with strong and growing assets under management: CVY has slightly tighter spreads, but MDIV has more daily volume.
What all this means is that the multi-asset income space has matured. Investors now have a range of viable ETF choices, backed with real assets and liquidity.
CVY, MDIV and the other funds mentioned here provide off-the-shelf, diversified exposure to a variety of yield-producing assets in a transparent, tax-efficient wrapper. They also provide a nice contrast to the precise but narrowly focused exposure from ETFs covering individual yield-producing asset classes.
At the time this article was written, the author held no positions in the securities mentioned. Contact Paul Britt at [email protected].