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These Overlooked Securities Yield Up To 16%

 April 23, 2012 10:21 AM
 


(By Street Authority) They've become wildly popular.

Their assets grew more than 30% a year during the past decade. For comparison, mutual funds saw their assets rise just 5-6% per year, according to McKinsey & Co.

And there are no signs of that growth slowing down. McKinsey & Co. projects assets in these securities will more than double in the next five years to at least $3.1 trillion, from a little more than $1.5 trillion today.

I'm talking about exchange-traded products. Most of that growth is in exchange-traded funds (ETFs), but a handful of overlooked exchange-traded notes (ETNs), yielding up to 16%, also are included in this market.

And while there are ETFs for everything from copper to cocoa, ETNs offer a unique type of exposure to mainly two high-yield groups: master-limited partnerships (MLPs) and business-development companies (BDCs).

For example, there is the JPMorgan Alerian MLP Index ETN (NYSE: AMJ), which yields 5% and tracks the performance of a basket of 50 master limited partnerships. And the UBS ETRACS 2x Wells Fargo BDC (NYSE: BDCL) pays a yield of 16% and tracks 26 BDCs.

ETNs are an entirely different beast from ETFs. Both track the performance of an index and offer a simple way to move in and out of a sector. Both may pay dividends thrown off by the securities in the index they track. And both can be bought or sold during the day, just like a stock.


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