F W S. 8 Great High-Yield Equity Income ETFs. Special Report

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1 F W S Fabian Wealth Strategies 8 Great High-Yield Equity Income ETFs Special Report By Doug Fabian, President, Fabian Wealth Strategies June 2011 Do I have enough money to retire? How much income can I really count on generating from my existing assets? How will the falling U.S. dollar impact my retirement security? I want to invest in the stock market, but I can t afford to have my assets go down. These are just some of the concerns I hear everyday from legitimately worried income investors. They re worried, because they see what s going on in the economy, the stock market, the bond market and in Washington, D.C. and they re not sure what to make of it. You see, no matter what your specific financial situation might be, every investor is faced with the challenge of making sure his or her assets will take care of them throughout their retirement. But how do you do that in the face of some very stiff headwinds? At Fabian Wealth Strategies we strive to help every client achieve their specific financial goals and to live the life they deserve. Our firm realizes that investing has never been more difficult, or more uncertain. We also know that the tactics and strategies employed in the past to generate vigorous income streams from existing assets aren t likely to work in a market plagued by the challenges we face right now. Perhaps the biggest difference between income investing today and the way it was done in the

2 past is that nowadays, you need both income generation and capital appreciation to meet your financial objectives. Why do you need to pursue both of these seemingly divergent goals? In a word: inflation. Over the past 100 years (really since the Federal Reserve Bank came into existence in 1913), we have seen a decline in the real value of the U.S. dollar. How much of a decline? According to the Bureau of Labor Statistics, the buying power of $1 dollar in 1913 would be almost $22 today. That actually translates to more than a 95% decline in the dollar s purchasing power. Right now, we are witnessing first-hand how stimulus-hungry politicians and their collaborators at the central bank have used fiat currency rules to attempt to inflate their way to prosperity. This printing of money has effectively caused and will continue to cause a debasing of our currency. And when the value of your dollar goes lower, and lower, and lower, the value of your fixed-asset payments from instruments such as government bonds evaporates into thin air. The Fed and the politicians pushing reckless fiscal policy are making an unfortunate and very serious mistake, but I don t expect to the powers that be to change their ways anytime soon. What this means is that you, the investor, are forced to take steps to beat the house. Put another way, your best defense against the ravages of a falling dollar and inflation is a good offense. Fortunately, in recent years there s been an explosion in the number of targeted financial products designed to deliver big dividends and high yields to income investors. These products come in the form of exchange-traded funds, or ETFs, and used correctly they can be a powerful weapon in the income investor s arsenal. In fact, the right high-yield ETFs can provide both a steady income stream and outstanding capital appreciation. These complementary goals are what we need to combat inflation and the erosion of the dollar, but just like any asset class, they aren t without risk. You can t just buy and hold any dividend ETF and expect to generate the income you need. In order to maximize your chances for income investing success, you not only have to pick the right dividend ETFs, you also have to have a risk-management strategy in place. The kind of strategy you need is one that gets you in the market when conditions permit, and keeps you away from the market when the waters are too treacherous. That s where the Fabian philosophy comes in. Our risk-management strategies have been used for over three decades to help investors achieve their financial goals, and we are constantly refining these strategies to account for the ever-evolving conditions in the market. The right high-yield ETFs can provide Now, one thing every military commander knows is that winning a war both a steady income stream and is a function of both good strategy and great personnel. When it comes outstanding capital appreciation. to the income-generating battle, the following eight great high-yield equity income ETFs represent the elite Special Forces unit that allows you to target your objective and to neutralize the dual enemies of a falling dollar and inflation. Now let s take a closer look at each of these dividend ETFs to see just what makes them so exceptional. 2

3 ishares Dow Jones Select Dividend Index Fund This is one of the first ETFs to come out with a dividend focus. Making its debut in November, 2003, the ishares Dow Jones Select Dividend Index Fund (DVY) has become one of our favorite ways to gain exposure to some of the biggest and strongest dividend-paying companies out there. To give you a sense of what kind of companies I m talking about, DVY counts among its top holdings stalwart dividend giants such as tobacco firm Lorillard, oil behemoth Chevron and healthcare products giant Kimberly-Clark. When you own DVY, you essentially own the 100 stocks in the Dow Jones U.S. Select Dividend Index. These are the oldest, largest and Ticker Symbol: DVY most established businesses in America, businesses with long and Total Net Assets: $6,294,562,667 brilliant track records of paying dividends to shareholders year in and Expense Ratio: 0.40% Total Holdings as of 6/22/2011: 101 year out. This ETF pays its dividend quarterly, so every three months you can ring the register with the income you get from this holding. In a slow-growth environment like the one we re in right now, investors tend to flock to companies with a steady hand, and that keep earning money despite difficult economic conditions. In other words, the companies contained in DVY. This fund is currently yielding 3.62% as of 6/22/11 according to ishares.com, and with over $6 billion in assets you are in good company with this equity income ETF. ishares S&P Global Telecommunications Sector Index Fund 3 Ticker Symbol: IXP Total Net Assets: $406,953,447 Expense Ratio: 0.48% Total Holdings as of 6/22/2011: 43 Traditionally, one of the best sectors for dividends and high yield has been telecommunications. That s because telecom companies are revenue-generating stalwarts, and they tend to share that revenue with stockholders via dividends. Thanks to the global infrastructure build out that s taken place over the past two decades, big telecomm companies can now be found throughout the world. The ishares S&P Global Telecommunications Sector Index Fund (IXP) is an ETF that contains the biggest and best telecomm sector companies out there. Top holdings in IXP include AT&T, Vodafone Group, Verizon Communications and China Mobile. What we like about IXP is that it allows us to get portfolio exposure to non-traditional telecomm businesses such as Internet services, cell phones and cable TV. These businesses, along with traditional telecomm services, are extremely profitable, and those profits make their way into shareholders pockets via outstanding dividends. This fund boasts an attractive yield of 4.64% according to ishares.com, and in our opinion has excellent capital appreciation potential. This combination makes it one of our favorite income-generating ETFs.

4 ishares S&P U.S. Preferred Stock Index Fund Ticker Symbol: PFF Total Net Assets: $7,904,386,837 Expense Ratio: 0.40% Total Holdings as of 6/22/2011: 101 Preferred shares are unique investment tools, as they pay investors a fixed dividend from a company s earnings. These are payments that are made before any dividends are paid to common shareholders. When you invest in preferreds, you gain the benefit of any capital appreciation in these stocks, and you also get that preferred-status dividend. This double-dose of upside is what makes the ishares S&P U.S. Preferred Stock Index Fund (PFF) one great choice for income investors. Top preferred stock holdings in the fund include General Motors, HSBC Holdings, Barclay s Bank and Bank of America. There s a preponderance of financial stocks in PFF, and that s because this sector pays big preferred dividends. In fact, PFF has a concentration in financial stocks to the tune of 85% of its holdings, and that makes this ETF a targeted play on the performance of financials. What we really like about PFF is its very attractive yield, which currently is 6.46% according to ishares.com. The one caveat with PFF is that it tends to be susceptible to weakness in the banking system. Because of this, it must be monitored closely each day. Guggenheim Multi-Asset Income ETF Perhaps the ETF with the most eclectic mix of dividend-producing assets is the Guggenheim Multi-Asset Income ETF (CVY). This fund holds common stocks, American depositary receipts, REITs, Master Limited Partnerships (or MLPs), closed-end funds, Canadian royalty trusts and even preferred stocks. Because of its tremendous diversity, CVY gives you exposure to only those securities that provide outstanding dividend income. As a result, the current yield on CVY is a very attractive 4.89% Ticker Symbol: CVY The diverse nature of CVY also makes it one of our favorite income Total Net Assets: $496,362,123 plays for conservative investors. That s because if one segment of Expense Ratio: 0.60% Total Holdings as of 6/22/2011: 148 the market falters, you have numerous others to help ensure you keep generating the income you need. Some of the top holdings in CVY are Conoco Phillips, Seadrill, Linn Energy LLC and Wells Fargo. These top holdings certainly speak to the diversity in this unique ETF, and its one big reason why it made our list of great income ETFs. 4

5 Guggenheim International Multi-Asset Income ETF Similar to its multi-asset cousin CVY, the Guggenheim International Multi-Asset Income ETF (HGI) is a global version of the eclectic mix of dividend producers. This fund has over 90% of its assets exposed to equities outside of the U.S., with the biggest country exposure concentrated in the United Kingdom, Canada and France. Top sectors in the fund include telecommunication services, financials and energy. Ticker Symbol: HGI Total Net Assets: $98,268,646 Expense Ratio: 0.65% Total Holdings as of 6/22/2011: 145 Given its global focus, HGI is a bit more aggressive than CVY; however, its diversity still makes a great choice for international income seekers. The fund s 4.98% current yield also makes it one of our eight, great dividend-income ETFs. PowerShares CEF Income Composite Portfolio This ETF offers income investors the flexibility and liquidity of an ETF, with the diversification of 116 high-yield, closed-end funds. The PowerShares CEF Income Composite Portfolio (PCEF) is known as a fund of funds, because it invests its assets in the common shares of closed-end funds rather than individual securities. Essentially, owning PCEF gives you diverse exposure to some of the best closedend funds around, including closed-end funds in the equity and highyield bond space. Ticker Symbol: PCEF Total Net Assets: $237,900,000 Expense Ratio: 0.50% Total Holdings as of 6/22/2011: 116 The really attractive characteristic of PCEF is its very high yield. The fund boasts a current yield of 7.91% according to powershares. com, putting it atop our list of the eight great equity-income ETFs in terms of yield performance. Even more attractive than the yield is the fact that you also have excellent capital appreciation opportunity in conjunction with a very diverse mix of holdings. 5

6 Wisdom Tree Pacific Ex-Japan Equity Income Fund This global income ETF concentrates the majority of its assets in Australia, with over 90% of its weighting coming from that country. The Wisdom Tree Pacific Ex-Japan Equity Income Fund (AUSE) is basically a bet on the Australia economy. That economy is one of the strongest in the developed world, and this strength is what, in part, makes this fund one of our eight, great income ETFs. Ticker Symbol: AUSE Total Net Assets: $54,295,000 Expense Ratio: 0.58% Total Holdings as of 6/22/2011: 76 The fund has many holdings in the financial sector, but also represented are companies in the consumer discretionary segment, telecommunications, consumer staples and industrials. The diverse mix of holdings in AUSE produces an excellent current yield of 6.38% according to wisdomtree.com. The inclusion of AUSE in an income portfolio gives you an unconventional way to get exposure to some of the best companies in one of the best economies on the planet. Alerian MLP Exchange-Traded Fund Ticker Symbol: AMLP Total Net Assets: $1,154,443,827 Expense Ratio: 0.80% Total Holdings as of 6/22/2011: 25 A newcomer to the world of ETFs, the Alerian MLP Exchange-Traded Fund (AMLP) is a powerful mix of 25 energy infrastructure Master Limited Partnerships, or MLPs. The unique structure of this fund allows for the elimination of any K-1 tax reporting, yet the fund still pays qualified dividends to shareholders. I like AMLP as an energy play, because as North America s energy transportation dynamics change, billions of investment dollars will be required for new natural gas and oil pipeline infrastructure. That puts energy MLPs at the forefront of this growth trend. 6

7 Now s The Time To Act Well, there you have it, our eight, great high-yield equity income ETFs. Of course, these eight are by no means where the story ends. In fact, there are many, many more tremendous ETF choices available to income investors. These are ETFs you can use to win the battle against an eroding dollar and higher inflation. At Fabian Wealth Strategies, we have the flexibility to use whichever ETFs we think will best achieve your income goals and that s precisely what we re doing for our clients each day. If you d like to find out more about how you can use these eight, great high-yield ETFs to win the income-generation battle, then I invite you to contact us today. Contact us for a brief introduction and to schedule a phone call time with you to get some help. We ll conduct a revealing Portfolio Review and give you specific recommendations for what you can do to better position your assets for the times ahead. This includes an in-depth review of your investment goals and analysis of all the holdings in your portfolio. You can call our offices at to setup a consultation or register online at Sincerely, Providing a Clear Pathway for Making Sound Financial Decisions. F W S F a b i a n Wealth Strategies 3070 Bristol St, Suite 610 Costa Mesa, CA T F W W W. F A B I A N W E A L T H. C O M Fabian Wealth Strategies, Inc. is a registered investment adviser with the U.S. Securities and Exchange Commission. Doug Fabian is a registered investment advisor representative. The information expressed by Fabian Wealth Strategies is for informational purposes only and should not be construed as a recommendation to buy, sell, or hold any specific security. Fabian Wealth Strategies may own securities listed in this report for client accounts. Fabian Wealth Strategies does not guarantee the accuracy of the data contained in this report. Investing involves risk, including the possible loss of principal. Carefully consider the investment objectives, risks, and charges and expenses of any security before investing. This and other information can be found in their company filings and prospectuses. Read the prospectus carefully before investing. All data contained in the report is as of June 22, Sources: Bloomberg Professional, ishares.com and stockcharts.com