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Income Investing: Ideas to Beat the BankSM

In an ever-changing interest rate environment, keeping tabs on the numerous corners of the yield market can be difficult for investors. To help investors stay informed, we offer monthly insights on income investing, covering the latest news, trends and investment opportunities.

Ex-Financials: The Preferred Among Preferreds – October 2020*
Authored by: Coulter Regal, CFA

Yields for many income-producing assets ticked up in September, breaking what had been a multi-month downward trend from March highs. The recent rise in yields was in part due to growing uncertainty around the economic recovery, U.S. presidential election, and prospect of an additional stimulus package, which caused widening spreads. These may continue to weigh on markets in the coming months, and investors should expect increased volatility at least through the elections. Despite these uncertainties, there are still attractive segments of the income market that may provide opportunity for investors.

Preferred securities is one such area that income investors may want to consider. Preferreds are considered hybrid securities, as they exhibit characteristics of both stocks and bonds, and may offer yield potential higher than that of a company’s common equity and senior debt. In addition, preferred securities historically feature low correlations with equities and traditional fixed income instruments, which may make them a useful diversifier in portfolios, especially during volatile periods like in today’s market. Typically, financial companies dominate the broad-based preferred universe, but seeking exposure to non-financial preferreds (“ex-financials”) provides differentiated exposure, resulting in greater sector diversification without sacrificing yield. Beyond sector diversification, ex-financial preferreds also display a few other notable features relative to financial preferreds or the broad-based universe. Excluding financial issuers also increases the proportion of preferreds paying cumulative distributions and lowers the proportion featuring near-term call dates relative to the broad preferreds market. These are especially important characteristics in today’s environment, where there are concerns of dividend suspensions and high incentive for issuers to call and reissue securities with lower rates. In addition, ex-financial preferreds have historically offered a yield pickup over the broad preferred market and are currently even out yielding high-yield credit markets despite over a third of the ex-financials preferred market carrying an investment grade credit rating.

For investors seeking yield in the current low rate environment, we believe ex-financial preferred securities may be an attractive segment of the market, offering potential for higher income with lower call and payment risk relative to the broad preferred market. Investors can gain exposure to the space through the VanEck Vectors Preferred Securities ex Financials ETF, which is intended to track the overall performance of U.S.-listed preferred securities, excluding those with a financial sector classification.

VanEck Vectors Income ETFs

Ticker Fund Name 30 Day SEC Yield (%)3 Duration (Yrs) Gross Expense Net Expense
Municipal Income
XMPT CEF Municipal Income ETF 4.12 -- 2.02 2.02
HYD High Yield Muni ETF 3.77 6.301 0.35 0.35
ITM Intermediate Muni ETF 0.99 5.851 0.24 0.24
MLN Long Muni ETF 1.92 6.731 0.24 0.24
MAAX Muni Allocation ETF 2.90 6.211 0.35 0.35
SHYD Short High Yield Muni ETF 2.71 4.241 0.35 0.35
SMB Short Muni ETF 0.37 3.031 0.20 0.20
Corporate Bond
ANGL Fallen Angel High Yield Bond ETF 4.65 6.262 0.43 0.35
FLTR Investment Grade Floating Rate ETF 0.62 0.062 0.40 0.14
Equity Income
BIZD BDC Income ETF 12.20 -- 10.31 10.24
EINC Energy Income ETF 8.86 -- 0.45 0.45
DURA Morningstar Durable Dividend ETF 3.88 -- 1.14 0.29
MORT Mortgage REIT Income ETF 13.21 -- 0.50 0.41
PFXF Preferred Securities ex Financials ETF 5.65 -- 0.44 0.41
International Bond
CBON ChinaAMC China Bond ETF 2.97 1.772 3.53 0.50
EMAG Emerging Markets Aggregate Bond ETF 3.19 5.552 1.49 0.35
HYEM Emerging Markets High Yield Bond ETF 6.02 3.572 0.47 0.40
GRNB Green Bond ETF 1.35 5.262 0.83 0.20
IHY International High Yield Bond ETF 4.65 3.662 0.62 0.40
EMLC J.P. Morgan EM Local Currency Bond ETF 4.20 5.162 0.36 0.30
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Source: VanEck (as of 09/30/20).
1Duration to Worst. 2Effective Duration. 330-Day SEC Yield is calculated daily, and is a standard yield calculation developed by the Securities and Exchange Commission that allows for fairer comparisons primarily among bond funds. It is based on the most recent 30-day period. This yield figure reflects the interest earned during the period after deducting the Fund's expenses for the period. It does not reflect the yield an investor would have received if they had held the Fund over the last 12 months assuming the most recent NAV. In the absence of temporary expense waivers or reimbursements, the 30-Day SEC Yields on 09/30/20 would have been as follows - XMPT: 4.12%MAAX: 2.90%ANGL: 4.57%FLTR: 0.38%BIZD: 12.13%DURA: 3.29%MORT: 13.12%PFXF: 5.62%CBON: 2.24%EMAG: 2.45%HYEM: 5.99%GRNB: 0.86%IHY: 4.55%EMLC: 4.19%. Expenses for VanEck Vectors Equity and Income ETFs are contractually capped. Expense caps exclude acquired fund fees and expenses, interest expense, trading expenses, taxes and extraordinary expenses. Expense Caps: XMPT: 0.40%MAAX: 0.08%ANGL: 0.35%FLTR: 0.14%BIZD: 0.40%DURA: 0.29%MORT: 0.40%PFXF: 0.40%CBON: 0.50%EMAG: 0.35%HYEM: 0.40%GRNB: 0.20%IHY: 0.40%EMLC: 0.30%. Expenses for VanEck Vectors Municipal ETFs are unitary fees. Van Eck Associates Corporation (the “Adviser”) will pay all expenses of these Funds, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes and extraordinary expenses. Expense ratios are as of the most recent prospectus. Past performance is no guarantee of future results. Please see the prospectus of each fund for more detailed information on expenses.

Morningstar ETF Category Flows

Estimated Net Flow ($M)
Morningstar Category Name 1-Mo QTD YTD 1-Yr
Short-Term Bond 2,977 9,700 20,787 24,457
Ultrashort Bond 1,992 -1,403 9,058 11,581
Intermediate Government 1,247 1,430 4,794 10,955
Long Government 1,061 -1,138 141 -984
Short Government 804 179 10,747 11,327
Muni National Interm 369 1,838 5,172 7,579
Muni National Short 343 1,059 2,209 2,675
Emerging Markets Bond 232 1,671 1,003 2,054
Muni National Long 172 890 1,410 1,590
World Bond 169 443 157 -13
High Yield Muni -215 -114 -295 66
Long-Term Bond -395 1,077 1,240 2,234
Bank Loan -591 -174 -2,954 -1,791
High Yield Bond -5,413 3,638 16,857 21,072
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Source: Morningstar (as of 09/30/20). Not representative of fund or fund indices.

Investment Category Yields

Yield to Worst (%)
Category 09/30/20 08/31/20 09/30/19
EM USD High Yield Aggregate 7.22 7.32 8.21
U.S. High Yield Corporates 5.76 5.36 5.87
Global High Yield Corporates 5.76 5.40 5.65
EM USD Sovereigns 5.15 5.06 5.16
High Yield Municipals 4.54 4.53 4.06
EM Local Currency Sovereigns 4.48 4.45 5.21
EM USD High Yield + Investment Grade Corporates 4.10 4.04 4.64
U.S. Corporates 2.01 1.95 2.91
Preferred Securities 1.86 0.78 1.36
Municipals 1.32 1.30 1.86
U.S. Aggregate 1.18 1.15 2.26
Global Aggregate 0.90 0.90 1.30
Treasury Inflation Protected Securities 0.68 0.68 1.88
10 Year Treasuries 0.68 0.70 1.68
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FactSet (as of dates indicated). See bottom of page for Index names. Not representative of fund or fund indices. Please see standard performance for these categories below. Past performance is no guarantee of future results.

U.S. Yield Curves

Treasury Yield Curve

Muncipal AAA Yield Curve

Source: Bloomberg (as of 09/30/20).

Global 10-Year Sovereign Yields (%)

Source: FactSet and Bloomberg (as of 09/30/20). Based on local currency prices. Past performance is no guarantee of future results.

Investment Category Total Returns (%)

Month-End 09/30/2020 Quarter-End 09/30/2020
Investment Category 1 MO* YTD* 1 YR 3 YR 5 YR
U.S. Aggregate -0.05 6.79 6.93 5.22 4.16
U.S. High Yield Corporates -1.04 -0.30 2.29 3.82 6.59
Global High Yield Corporates -1.45 0.48 3.87 3.62 6.62
EM USD High Yield Aggregate -2.69 -3.51 0.06 1.02 5.89
EM USD High Yield + Investment Grade Corporates -0.62 3.05 5.27 4.89 6.48
EM Local Currency Sovereigns -2.02 -6.32 -1.43 0.17 4.76
EM USD Sovereigns -1.85 -0.51 1.28 3.48 6.12
U.S. Corporates -0.29 6.64 7.84 6.38 5.95
U.S. REITs 0.06 5.13 6.14 5.86 5.40
Global Aggregate -0.36 5.72 6.19 4.08 3.91
Treasury Inflation Protected Securities -0.37 9.22 10.00 5.77 4.59
Municipals 0.02 3.33 4.06 4.26 3.83
High Yield Municipals 0.10 0.37 1.26 5.80 5.97
10 Year Treasuries 0.22 12.73 10.65 6.94 4.26
Preferred Securities -0.63 2.59 3.87 5.00 6.08
U.S. Dividend Stocks -2.46 -19.86 -16.07 -0.49 6.37
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VanEck Vectors Income ETF Total Returns (%)

Month-End 09/30/20 Quarter-End 09/30/20
Ticker Fund Name 1 MO* YTD* 1 YR 3 YR 5 YR LIFE Commenced
Municipal Income
HYD High Yield Muni ETF -0.28 -3.64 -3.16 2.75 3.93 6.71 02/04/09
ITM Intermediate Muni ETF -0.21 3.85 4.02 4.42 3.99 4.45 12/04/07
MAAX Muni Allocation ETF -0.24 -2.45 -2.08 -- -- 0.69 05/15/19
MLN Long Muni ETF -0.25 3.69 3.64 5.07 4.77 4.33 01/02/08
SHYD Short High Yield Muni ETF 0.00 -0.91 -0.18 2.92 2.56 2.71 01/13/14
SMB Short Muni ETF -0.01 2.72 3.35 2.41 1.89 2.37 02/22/08
XMPT CEF Municipal Income ETF -0.09 0.70 1.51 4.23 5.73 6.01 07/12/11
Corporate Bond
ANGL Fallen Angel High Yield Bond ETF -2.11 3.95 6.98 4.93 8.85 8.05 04/10/12
FLTR Investment Grade Floating Rate ETF 0.04 1.16 1.96 2.54 2.38 1.60 04/25/11
Equity Income
BIZD BDC Income ETF -0.52 -20.05 -18.92 -2.54 4.54 2.06 02/11/13
DURA Morningstar Durable Dividend ETF -1.77 -7.00 -1.26 -- -- 6.08 10/30/18
EINC Energy Income ETF -11.09 -34.87 -33.85 -15.20 -11.98 -14.69 03/12/12
MORT Mortgage REIT Income ETF -1.32 -36.54 -33.56 -10.55 0.68 3.18 08/16/11
PFXF Preferred Securities ex Financials ETF -0.69 -0.91 -0.04 4.14 5.61 5.28 07/16/12
International Bond
CBON ChinaAMC China Bond ETF 1.06 5.00 8.45 3.32 1.75 1.61 11/10/14
EMAG Emerging Markets Aggregate Bond ETF -1.51 -1.28 1.36 2.59 4.95 2.62 05/11/11
EMLC J.P. Morgan EM Local Currency Bond ETF -1.81 -5.65 -2.07 -1.43 3.36 0.49 07/22/10
GRNB Green Bond ETF -0.03 6.54 6.53 2.84 -- 4.80 03/03/17
HYEM Emerging Markets High Yield Bond ETF -1.26 0.42 3.89 2.92 6.38 5.05 05/08/12
IHY International High Yield Bond ETF -1.89 1.11 4.92 3.08 6.05 5.01 04/02/12
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Month-End 09/30/20 Quarter-End 09/30/20
Ticker Fund Name 1 MO* YTD* 1 YR 3 YR 5 YR LIFE Commenced
Municipal Income
HYD High Yield Muni ETF -0.28 -3.65 -3.27 2.75 3.93 6.70 02/04/09
ITM Intermediate Muni ETF -0.13 3.85 4.25 4.51 3.97 4.45 12/04/07
MAAX Muni Allocation ETF -0.08 -2.35 -1.93 -- -- 0.83 05/15/19
MLN Long Muni ETF 0.12 3.94 3.95 5.33 4.90 4.36 01/02/08
SHYD Short High Yield Muni ETF 0.27 -0.93 -0.05 3.11 2.74 2.76 01/13/14
SMB Short Muni ETF -0.15 2.61 3.59 2.52 2.00 2.38 02/22/08
XMPT CEF Municipal Income ETF -0.33 0.36 1.26 4.08 5.68 5.98 07/12/11
Corporate Bond
ANGL Fallen Angel High Yield Bond ETF -2.03 3.57 6.86 4.92 8.90 8.07 04/10/12
FLTR Investment Grade Floating Rate ETF -0.16 1.03 2.00 2.44 2.40 1.60 04/25/11
Equity Income
BIZD BDC Income ETF -0.49 -20.31 -19.03 -2.59 4.54 2.06 02/11/13
DURA Morningstar Durable Dividend ETF -1.72 -6.84 -1.11 -- -- 6.19 10/30/18
EINC Energy Income ETF -11.14 -34.55 -33.79 -15.18 -11.97 -14.72 03/12/12
MORT Mortgage REIT Income ETF -1.14 -36.45 -33.44 -10.61 0.69 3.18 08/16/11
PFXF Preferred Securities ex Financials ETF -0.82 -0.95 -0.03 4.29 5.54 5.32 07/16/12
International Bond
CBON ChinaAMC China Bond ETF 1.44 6.62 9.36 3.76 2.17 1.78 11/10/14
EMAG Emerging Markets Aggregate Bond ETF -1.32 -1.72 0.70 2.49 5.07 2.61 05/11/11
EMLC J.P. Morgan EM Local Currency Bond ETF -1.70 -5.50 -1.05 -1.31 3.43 0.51 07/22/10
GRNB Green Bond ETF 0.00 6.74 6.73 2.90 -- 4.92 03/03/17
HYEM Emerging Markets High Yield Bond ETF -1.52 0.26 4.21 3.02 6.47 5.10 05/08/12
IHY International High Yield Bond ETF -1.87 1.14 5.20 3.04 6.12 5.02 04/02/12
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