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Investors are hunting for income from both stocks and bonds, and that has created some new winners and new experiments in the exchange-traded funds market. The highlight of the industry has been the JPMorgan Equity Premium Income ETF (JEPI) , whose yield topped 11% as the fund’s strategy of using dividend stocks and selling call options paid off when the market fell and investors looked for safety. The fund now has more than $20 billion in assets under management. But JEPI wasn’t the only popular fund. The Amplify CWP Enhanced Dividend Income ETF (DIVO) , which uses a covered call strategy, has pulled in more than $1.6 billion of fund flows over the past year, while the Schwab U.S. Dividend Equity ETF (SCHD) ‘s equity-only approach has raked in over $13 billion. Both funds have delivered a positive total return over the past 12 months, with a distribution yield comfortably above the S & P 500 ‘s. The start of 2023 has proven to be a different market than 2022, and there are some new ETFs hitting the market offering more approaches for investors to find income. Here’s a look at some strategies that may gain steam this year. International income One area where investors may look next for income is the international market, which has outperformed the U.S. in the opening weeks of 2023. Both Amplify and Schwab offer international versions of their yield funds — Amplify International Enhanced Dividend Income ETF (IDVO) and Schwab International Dividend Equity ETF (SCHY). Amplify’s international fund, which launched in September, still has under $20 million in assets but has seen inflows of $12 million since the start of the year. The Schwab fund has raked in over $100 million in 2023. “So we’re starting, I think, to see some legs there, partly spurred by the alpha from international markets,” said Christian Magoon, CEO of Amplify ETFs. Investing in international dividend stocks can be a bit tricky for investors, as different distribution schedules and currency impacts can make the cash flow a little less predictable than in U.S. portfolios. “We’re trying to pass through the income as the fund receives it. It’s really about setting the right expectations for investors … helping them understand that there’s a bit more lumpiness to your income flow,” said David Botset, head of equity product management and innovation at Schwab Asset Management. Fixed income funds Another area that could pay off for investors is fixed income. While interest rates have moved higher again after economic reports showed a resilient labor market and potentially sticky inflation, many strategists expect the Fed’s rate hikes to peak this year. That means that investors could buy high yielding products and then, if the central bank starts to cut rates, benefit from a bond market rally. Bond yields and prices move inversely to each other. “This is a once in many, many year opportunity to de-risk, rebalance, get back into fixed income,” said Stephen Laipply, US Head of iShares Fixed Income ETFs. The fixed income ETF market is much smaller than the equity ETF market, and 2023 could see a continued growth in new categories. For example, several collateralized loan obligation funds have launched in recent months Another area of growth could be multi-sector funds, which can have active management to navigate continued volatility in the bond market. The Capital Group U.S. Multi-Sector Income ETF (CGMS) , for example, has already crossed $80 million in assets under management after launching in October and has a 30-day SEC yield of about 6%. “Multi sector as one example is a very popular category in mutual funds and virtually non-existent in ETFs,” said Holly Framstedt, director of ETFs at Capital Group. Other options strategies There are also funds on the market that combine fixed income and options strategies. In August, BlackRock’s iShares launched a series of BuyWrite ETFs covering long-term Treasurys ( TLTW ), high-yield corporate debt ( HYGW ) and investment grade corporate debt ( LQDW ). Because the funds sell call options on the underlying ETFs, they may benefit from a “higher for longer” rate environment where the Fed does not cut rates anytime soon. “If you do believe that we will ultimately land somewhere in this range, those can be really attractive,” Laipply said. “I feel the same way about mortgages.”
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