What You May Have Missed This Week...

The Pacer U.S. Cash Cows 100 ETF (COWZ) has been around since December 2016. Its strategy is backed by years of history and study confirming that companies that do a better job of generating free cash flow produce better returns.

Today, Pacer is now firmly on the ETF marketplace map. It operates nearly 50 ETFs with COWZ residing as the tentpole of its "cash cow" strategy lineup. Even though it's the largest, COWZ might not be Pacer's best ETF. In fact, it might not even be the best "cash cow" ETF in the lineup! In my opinion, that title goes to the Pacer Cash Cows Fund of Funds ETF (HERD).

One trend that has emerged in the ETF industry to fill in the high yield gap is what I'll label "covered calls on steroids" strategies. Prior to their launch, a double digit yield in the range of 10-12% was about as high as you could reasonably hope for. Now, some of these products are pumping out 50% yields and even higher.

One fund that uses the 0DTE strategy is the Defiance S&P 500 Enhanced Option Income ETF (JEPY). Looking at just the ticker, you might assume that this fund uses JEPI as its foundation and then ramps up the option writing activity. In reality, the funds are quite different from each other.

The stock market finally experienced a setback in April as inflation began to re-accelerate and Q1 GDP growth came in far lower than expected. On top of that, the timing for a Fed rate cutting cycle continues to get pushed back to the point where there's a real possibility we may see no rate cut in 2024 at all.

I do think the cautious tone will continue to hang over the market though. If inflation continues to remain elevated and the Fed gives no signs that rate cuts are coming, investors may decide that riskier isn't better and remain more cautious, especially if labor market data starts showing more cracks.

If you've followed me for a while, you'll know that I'm not really the biggest fan of the Vanguard High Dividend Yield ETF (VYM). That's not to say that it doesn't check a lot of the boxes. Its ultra-cheap 0.06% expense ratio was one of the lowest you'll find and its $53 billion asset base ensures that it's highly liquid and tradeable. VYM currently ranks #2 on my quantitatively-driven list of the best dividend ETFs.

That doesn't mean that VYM isn't useful though, especially in the context of retirement investing. In fact, the one thing that I find less appealing about VYM may actually be the thing that makes it more ideal as a retirement vehicle.

Let me explain...

Fidelity, as most of you already know, is one of the largest money managers in the world. In the ETF world, the company got a bit of a late start, but they're starting to gain ground now. Their first ETF, the Fidelity Nasdaq Composite ETF (ONEQ), was launched back in 2003, but it was another 10 years before they brought another one to market. Now, the company is up to 70 total ETFs and is the 11th largest ETF issuer.

There are a few funds that stand out to me as ideal for retirement investors.

Several weeks ago, I wrote about the Freedom Day Dividend ETF (MBOX) in an article titled "Is This The Best Dividend ETF You've Never Heard Of?"

It's not the only one though. There are actually several other dividend ETFs out there that qualify as underappreciated. In a marketplace that is dominated by the Vanguards, State Streets and BlackRocks of the world, smaller issuers and funds can have trouble breaking through the proverbial glass ceiling.

Today, it's time to shine some light on some of the "just as deserving" dividend ETFs out there!

In the recent past, I wrote about the iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (TLTW). It's essentially a covered call strategy written on long-dated Treasuries in the same way that you see many covered call equity ETFs structured.

Flash forward to TLTW's one-year birthday and the fund will still throwing off some pretty prodigious distributions. Its 20% yield was roughly holding, although total returns were still flat because bond yields were still rising and long bonds were struggling.

There are approximately 160 dividend ETFs in the marketplace today. Some focus on dividend growth. Others on high yield. You can find options for investing internationally or in emerging markets.

One metric that does a fairly good job of leveling the playing field is risk-adjusted returns. This considers absolute fund performance but assesses it relative to the amount of risk it's taking to achieve those returns. Sure, an ETF can deliver huge returns, but if it's uncomfortably volatile and prevents you from sleeping at night, is it worth it?

If you're seeking just pure low-risk income from your portfolio, the landscape has gotten pretty easy. Just buy something like the U.S. Treasury 12 Month Bill ETF (OBIL), which continuously rolls into the most recently issued bill and enjoy its current 5.2% yield. High income with virtually no risk.

There is one fixed income asset class out there that gives you a significant yield boost over Treasury bills, yet still keeps total risk very managed - high-grade CLOs.