Should I Get Back Into High Dividend ETFs?
About a year ago, I became interested in closed-end funds (CEFs). They offered relatively high dividend returns but also had some risk. It was a rather complex calculation that I was making, but I figured that holding on to the best quality closed-end funds for a couple of years would be pretty lucrative.
Most of the CEFs I bought are up 7-8%, with dividends included. While the stocks might be down slightly with an unrealized capital loss, they have returned more than that as a monthly distribution. So it has been a successful investment so far.
With dividends included:
- DLY is up 8.5%
- DBL is up 3.5%
- VVR is up 7.6%
I ended up selling some of the other investments early to move them into short-term bonds. I traded volatility and risk for a bit of safety.
Around the same time that I was discovering CEFs, I also found high-yield ETFs. These ETFs often own the typical dividend-paying stocks (like banks and utilities) but do something to juice the returns, like using covered calls or leverage.
I was familiar with the BMO covered-call ETFs, and after initially being skeptical, I invested in many of them.
With dividends included:
- ZWC is down 1%
- ZWB is down 2.4%
- ZWU is down 6.6%
Obviously, that has not been as successful a trade. I had initially believed these ETFs did not perform as well as the underlying stocks, and I was proven right over the past year. Maybe I should divest myself from them since there’s no evidence they will do better going forward.
The biggest holding in my portfolio for a long time was Hamilton Enhanced U.S. Covered Call ETF (HYLD).
This ETF holds other ETFs and uses leverage as well. So when I buy $1,000 of HYLD, I own $1,250 of the underlying ETFs.
At one point in the year, I was a bit scared that I was overweight in HYLD and sold some (at breakeven). That might have been the wrong move because HYLD has been a great performer this year.
With dividends included:
- HYLD is up 10.8%!
One of my best performers across my entire portfolio!
The stock itself is down slightly from where I bought it. But one year of 11.5% dividends has made up for that in my actual returns.
The managers of this fund have been active. They’ve moved out of some funds and moved into others. It was formerly a 14% yield, but now it’s down to 11%. 11% is more sustainable than 14%, so it was probably the right move on their part.
Should I get back into more high-yield ETFs, with the goal of owning them long-term?
I’m tempted. The positive performance of my CEFs and HYLD is giving me hope. I have plenty of interest-paying investments to be solid moneymakers in my portfolio. It may be time to let some of these high-performers in again. A little at a time.
