Morningstar Advisor - December 2010/January 2011 - (Page 70)

Screens Stable, High Yields (No Bonds Included) By Abraham Bailin There are other options for investors who are bearish on bonds. Investors have continued to pour assets into bond funds in pursuit of stable returns. Since 2009, quarterly net flows into bondfocused mutual funds and exchange-traded funds averaged just more than $92 billion, and the trend doesn’t seem to have eased off. Bonds funds saw $89 billion in net flows during the third quarter of 2010. Sustained inflows and loose monetary policy have depressed yields, prompting worries about a bubble. Will the bubble pop, and if so, what might the repercussions be? Investors expecting anemic economic growth might buy bonds at today’s rates. If inflation ramps up, however, current yields are likely to rise and bond prices are likely to fall. Higher inflation could generate losses for today’s bond investors, a timely concern given the likelihood of a second round of quantitative easing. Yield-focused investors face stable returns on the one hand and inflationary losses on the other. In this screen, we use Morningstar Principia to identify high-yielding, liquid ETFs outside of the bond space. Filtering out municipal and taxable bonds, we focus on ETFs whose 12-month yields are greater than 4.5%. 25,000 shares; out of the 12 ETFs that jumped through all of these hoops, these stood out. iShares S&P U.S. Preferred Stock Index PFF Our screen returned a number of preferredshare funds; this isn’t surprising: Preferred equity securities offer consistent high yields. IShares S&P U.S. Preferred Stock Index delivers a high and stable yield—7.24% as of the end of October. With a three-month average daily volume of 1,428,970 shares, a net expense ratio of 0.48%, and net assets of just less than $6 billion, the fund is the largest, cheapest, most liquid, and highest-yielding preferred-stock-focused ETF on our list. There are, however, risks here. With more than 85% of assets soaked up in financial companies, there’s large sector-specific risk. Security Type And And And Morningstar Category Morningstar Category 12 month yield 5 ETF 5 Municipal bond / / 5 Taxable bond . 4.5% As of Nov. 1, 21 ETFs passed this screen. Morningstar Office users can further refine the screen to find ETFs with all the above qualities and also maintain daily trading volumes above 70 Morningstar Advisor December/January 2011

Table of Contents for the Digital Edition of Morningstar Advisor - December 2010/January 2011

Morningstar Advisor - December 2010/january 2011
New on
Letter From the Editor
What Strategies Do You Use to Help Retirees Hedge Against Longevity Risk?
Investment Briefs
Four Picks for the Present
Scaring the Swiss
Tech Is the Apple of Managers’ Eyes
How to Read an Sec Filing
A Strategy That Loves Performance Chasers
Things Fall Apart, Even in Industrials
A Future in Questions, Not Answers
Research Over Chocolates
Creating Portfolios That Confront Retirement’s Risks
Building in-Retirement Portfolios to Last
On the Lookout for Guaranteed Income Streams
What Fires Up Mairs & Power
All Aboard!
Aiming at Alternatives
Stuff Your Stocking with Out-of-Favor Bargains
Stable, High Yields (No Bonds Included)
Mutural Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks with Wide Moats
Twelve Bee, Huh?

Morningstar Advisor - December 2010/January 2011