At this point it's no secret that investors have been craving new income solutions. With the Federal Reserve continuing to keep interest rates at historical lows, traditional sources of income including CD's, money market funds and bond funds like the iShares Barclays 7-10 Year Treasury (ARCA:IEF) have all but dried-up in this new environment. To that end, investors have plowed billions into various other sectors and assets in order to gain a little more yield. However, managing a complex income plan can be a daunting task. Securities including REITs and MLPs, along with hybrid bonds like convertible bonds, all come with their own unique challenges and advantages. Luckily, the exchange-traded fund (ETF) boom has you covered.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Income Allocation
With more investors searching outside the norm for various sources of income, Wall Street has come to the rescue with a variety of new products designed to make managing those assets easier. Investment staple balance funds--which blend both stocks and bonds--have received a new face lift. These new multi-asset plays, include weightings to junk bonds, emerging market stocks, preferred stocks and even real estate and pipeline partnerships, as well as exposure to traditional stocks and investment-grade bonds. Ultimately, these new funds can serve as a one-stop shop for diversified income exposure and address a portfolio's need for higher and stable income.

SEE: 5 Popular Portfolio Types

At their core, these new multi-asset income funds strive to provide high income relative to traditional metrics, long-term capital appreciation and diversification with lower volatility. Additionally, the new ETFs eliminate some of the complexities of holding some of these asset classes individually. For example, investors holding individual MLPs like Magellan Midstream (NYSE:MMP) are considered limited partners and receive K-1 statements. That can be a headache come tax time. The new funds are able to pass through most of the MLP distributions to shareholders as return of capital or ordinary income without K-1 statements.

SEE: 5 Ways To Save On Investments

A Look Under the Hood
While the multi-asset income sector is fairly new, there has been an impressive amount of launch activity as of late and there are now five to choose from. However, each one sticks to its own investment style, collection of assets and risk profiles. It's important to look under the hood of each to determine which fits best in your portfolio.
The oldest in the category is the Guggenheim Multi-Asset Income (ARCA:CVY). Launched in 2006, the fund features holdings in a number of different asset classes, including common stocks, REITs, closed-end funds, MLPs, preferred stocks and Canadian royalty trusts. Top holdings include Pengrowth Energy (NYSE:PGH) and BlackRock Build America Bond Trust (NYSE:BBN). The diversity of holdings helps the fund produce a strong 5% yield. Guggenheim also offers an international version, with its International Multi-Asset Income ETF (ARCA:HGI).

SEE: 3 Steps To A Profitable ETF Portfolio

Two of the new ETF launches take a "fund of funds" approach to multi-asset income. Both the SPDR SSgA Income Allocation ETF (ARCA:INKM) and the iShares Morningstar Multi-Asset Income (BATS:IYLD) will invest in other ETFs issued by respective sponsors. The iShares fund is currently the more conservative option with nearly 60% in fixed income holdings like the iShares iBoxx $ Invest Grade Corp Bond (ARCA:LQD). The fund rounds out that exposure with a 30% to U.S. dividend paying stocks via the iShares Dow Jones Select Dividend ETF (ARCA:DVY). The SPDR takes a different approach and uses active management to achieve its goals and only features a 40% weighting to fixed income securities.

Finally and perhaps the riskiest of the category is the Arrow Dow Jones Global Yield ETF (ARCA:GYLD). Instead of betting on other funds, the ETF holds individual securities across a variety of asset classes. That includes hefty weightings to global equities, global real estate and energy-related issues like MLPs and CANROYs.

SEE: An Introduction To Canadian Income Trusts

The Bottom Line
With more investors looking for income in non-traditional asset classes, managing all of those moving pieces is getting complicated. Luckily, the ETF boom is there to help. Wall Street has recently unveiled a series of multi-asset income funds designed to produce high yields from a wide range of sources.

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  2. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  3. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  4. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  5. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  6. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  7. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  8. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  9. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  10. Home & Auto

    5 Mistakes That Make House Flipping A Flop

    If you're just looking to get rich quick, you could end up in the poorhouse.
  1. Can hedge funds trade penny stocks?

    Hedge funds can trade penny stocks. In fact, hedge funds can trade in just about any type of security, including medium- ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>

You May Also Like

Trading Center