10 Highest Yielding Europe-Listed ETFs

With interest rates set to stay low for months to come, high-yield ETFs are attractive to some investors

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

Ever since central banks in the UK, Europe and the U.S. cut interest rates, the search for yield has been a big theme in financial markets. Short-term debt yields little or nothing, and even longer term 10-year UK Gilts barely yield above 1.8 percent.

While the Fed is expected to lift rates from rock-bottom levels in the coming months, and the UK is anticipated to follow suit in 2016, the low interest rate environment isn’t going away anytime soon. The Federal Reserve “dot plot”, which maps where central banks see rates headed in the future, indicates that the benchmark overnight rate in the U.S. could remain below 3 percent through 2017.

That means investors will have to continue reaching out in the risk spectrum if they want to capture higher yields. Whether taking on that risk is a good idea or not is an open question, but for the investors who want them, the ETF universe is offering up plenty of juicy yields.

Of the 10 highest-yielding ETFs in Europe, as measured by data house Markit, each pays out an annualised 5 percent or more.

MLPs Offer Highest Yield

The top spot with a 12-month yield of 8.47 percent is the Source Morningstar US Energy Infrastructure MLP UCITS ETF (MLPS).

MLPs are typically involved in the energy infrastructure business and are notorious for having high pay-outs.

However, the lofty yields of MLPs got even higher this year after the sector was hammered on the back of the oil industry bust. Operating energy pipeline and storage facilities, many MLPs will see a reduction in cash flows as oil production in the U.S. plunges.

At worst, some of the riskier, smaller MLPs―the ones that the three ETFs mentioned above tend to hold―could go bankrupt. At the very least, many MLPs will see reductions in their distributions to shareholders.

That said, if oil prices and output eventually recover, as many analysts expect, MLP ETFs could be a bargain at these levels.

Emerging Markets Remain King

Half of the funds on this list are focused on emerging markets, including equities and fixed income. The highest 12-month yielding fund is the SPDR Barclays EM Inflation Linked Local Bond UCITS ETF (SYBI) at 6.93 percent. Local currency-denominated bonds means investors will have to beware FX fluctuations between that of their investment’s base currency and their home currency.

Equities also hit a high mark, with the iShares Emerging Market Dividend UCITS ETF (SEDY) producing 6.5 percent over 12 months.

 

High-Yield Bond ETFs

While various ETFs on the top 10 list focus on a specific area of the market, there are quite a few ETFs listed here, like the Deka DAXplus Maximum Dividend UCITS ETF (EL4X) and the Lyxor Stoxx Europe Select Dividend 30 UCITS ETF (SEL) that reach out to many different equity sectors within one region to obtain yield.

The result is a hodgepodge of securities with little in common other than their high yields. On a total return basis, these ETFs have performed rather well over the past year at 26.21 percent and 10.67 percent respectively, presenting a double whammy for yield investors.

The top 10 highest 12-month yielding ETFs, excluding ETNs, ETCs, short and leveraged funds, are below:

Number

Fund

12-month yield (%) as of 2.11.15

1

Source Mstar US Enrgy Infra MLP ETF B

8.46

2

SPDR Barclays EM Infl Lnkd Lcl Bd ETF

6.93

3

iShares Emerging Markets Local Govt Bd

6.64

4

Lyxor ETF iBoxx $ Liquid EM Sovergn A/I

6.56

5

iShares Emerging Markets Dividend

6.53

6

FTSE EPRA EuroZone ThmEy ETF Classic Dis

5.82

7

SPDR S&P Emerging Markets Dividend ETF

5.61

8

Deka DAXplus Max Div ETF

5.56

9

Lyxor ETF Stoxx Europe Sel Dividn 30 A/I

5.49

10

iShares Glbl Hi Yld Corp Bd GBP Hdgd

5.45

 

 

 

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.