With the stock market’s lingering volatility and prolonged low interest rates, many income-seeking investors are turning to fixed income for a reliable stream of cash flow.
The problem? Certificate of Deposit (CD) rates are dire, and traditional money market accounts are yielding practically zero.
So, what is an income investor to do?
If you are looking to squeeze more yield out of your cash without picking individual issues, passive bond ETFs offer an accessible solution. Here are three low-cost exchange-traded funds providing attractive yields in today's market:
1. SPDR Barclays Capital High Yield Bond ETF (JNK)
The cheeky ticker symbol says it all: this fund invests in "junk bonds," otherwise known as high-yield corporate debt.
While junk bonds carry a reputation for being erratic and speculative, holding them through a diversified fund helps cushion individual default risks while delivering a juicy yield.
JNK is passively managed, keeping its expense ratio at an affordable 0.40%—below the 0.47% category average. Its portfolio features debt from familiar corporate giants like Citigroup, AIG, Harrah’s, and Clear Channel Communications.
As of this writing, JNK boasts an impressive 10.8% yield. Keep in mind that a fat yield comes with added risk, mostly in the form of sharper price swings than you would typically expect from fixed income.
2. PowerShares Emerging Markets Sovereign Debt Portfolio (PCY)
For investors willing to look overseas, PCY tracks the Deutsche Bank Emerging Market USD Liquid Balanced Index, holding sovereign bonds issued by more than 20 developing nations.
The Philippines currently leads as the fund’s largest holding, with Mexico, Brazil, Colombia, and El Salvador rounding out the top five.
While emerging markets were historically viewed as default-prone, the ongoing European debt crisis in developed nations like Portugal, Ireland, Italy, Greece, and Spain (the "PIIGS") has turned conventional wisdom on its head.
PCY charges a modest 0.50% expense ratio—5 basis points cheaper than the category average—and offers a compelling 6.11% yield.
3. Vanguard Total Bond Market ETF (BND)
It isn't sexy, but BND is reliable, rock-solid, and dirt cheap.
Think of BND as the steady tortoise of fixed income: it plods along yielding a better-than-the-bank payout while steering clear of the wild, swashbuckling volatility seen in junk bonds or emerging market debt.
BND passively tracks the broad Barclays Capital U.S. Aggregate Float Adjusted Index, offering exposure to thousands of high-quality U.S. Treasuries, agency bonds, and investment-grade corporate debt.
Vanguard charges a miserly 0.12% expense ratio, making it one of the cheapest core bond funds available. With its top 10 holdings accounting for just ~11% of total assets, BND provides exceptional diversification along with a dependable 3.62% yield.
