Retired investors are often looking for core exposure in funds that demonstrate low costs and steady income.
These two attributes are key to maintaining a correlation with the market, while creating a passive stream of dependable dividends to offset living expenses.
One fund company that offers several different options in this arena is the iShares suite of ETFs from BlackRock.
This fund company dominates the ETF landscape because they understand the importance of simple tools with a high degree of transparency and minimal fees.
In fact, BlackRock has nearly $1 trillion in U.S.-based ETF assets and currently holds 40% of the market share overall. This means that their funds are highly liquid (great trade execution) and very tax-efficient (minimizing capital gains).
Without further preamble, let’s jump into my top four BlackRock ETFs for steady retirement income.
iShares Core High Dividend ETF (HDV)
I have held HDV as a core holding for subscribers in my Flexible Growth and Income Report for well over a year now and it continues to be a standout performer. This exchange-traded fund owns a diversified portfolio of 75 U.S. stocks that pay high dividend yields.
While there is some small and mid-cap exposure in this ETF, its index construction criteria skews the majority of the weighting towards large-cap stocks. Top holdings are well-known names such as Exxon Mobil Corp (XOM) and AT&T Inc (T).
The dividend stocks in this fund combine to produce a current 30-day SEC yield of 3.57% and income is paid quarterly to shareholders.
HDV is the type of holding that can be used to maintain correlation with the stock market, while collecting an above-average income stream in the process.
It’s also worth noting that HDV has a very minimal expense ratio of 0.08%, which makes it suitable as a long-term core holding. The fund currently has over $6.4 billion in total assets as well.
iShares Core Dividend Growth ETF (DGRO)
An excellent broad-market supplement to HDV is DGRO, which focuses on companies with a consecutive history of growing their dividends. This makes for an attractive fundamental tailwind and commitment to returning business gains to shareholders.
DGRO is a multi-sector, multi-market cap index comprised of 425 U.S. stocks with consistent year-over-year dividend growth. The fund currently sports a 30-day SEC yield of 2.59% and income is paid quarterly to shareholders.
This ETF is also a core holding in my newsletter and continues to provide broadly diversified exposure to high quality stocks in a single low-cost vehicle. DGRO charges a similar expense ratio of just 0.08% annually and has nearly $1 billion in total assets.
iShares U.S. Preferred Stock ETF (PFF)
Preferred stocks are a type of hybrid income vehicle that straddle the line between equity and fixed-income characteristics. This alternative style allows them to pay relatively high yields and also remain in a senior position on the capital structure.
PFF is the largest fund in this sector, with over $16 billion dedicated to a benchmark of 300 preferred issues. Most the underlying exposure is distributed in the financial and real estate sectors, with smaller allocations in telecom, energy, and utilities.
This exchange-traded fund currently sports a 30-day SEC yield of 5.34% and income is paid monthly to shareholders. The annual expense ratio for PFF is listed at 0.47%.
It should be noted that a fund of this nature should be used as a tactical holding in the context of a diversified income portfolio. It may be appropriate as an income-enhancing specialty fund or to provide a dynamic return profile for those seeking out high yield sectors.
Investors should note that preferred stocks will be susceptible to both interest rate and equity volatility as principal risks.
iShares Conservative Allocation ETF (AOK)
In my experience, retirees tend to shift their risk tolerance down a few notches as they begin to realize there is less time to make up for any egregious mistakes. One way to do that is to consider a low-cost, multi-asset fund with a conservative mandate.
AOK is designed as a 70/30 allocation of bonds and stocks that includes both domestic and foreign exposure.
This “fund of funds” style ETF is make up of other iShares portfolios with a total net expense ratio of 0.25%. Income is paid monthly to shareholders in AOK and the current 30-day SEC yield is listed at 2.53%.
Conservative investing isn’t sexy, but this ETF allows you to participate in an extremely diversified portfolio at a very minimal expense. This creates a sensible game plan and one-stop-shop for a portion of your investment accounts.
One note of caution is that the overweight nature of the bonds in this portfolio does skew the risk needle towards the direction of interest rates. Nevertheless, the historical price fluctuations have been far more muted than a stock-only holding.
Until next time,
David Fabian is a Managing Partner at FMD Capital Management, a fee-only registered investment advisory firm specializing in exchange-traded funds. He has years of experience constructing actively managed growth and income portfolios using ETFs. David regularly contributes his views on wealth management in his company blog, podcasts, and special reports.