New ETFs On The Block: Global X SuperDividend Alternatives ETF (ALTY)

InvestingThe revised gross domestic product data that showed the US economy grew at a robust 3.7 percent in the second quarter certainly strengthens the case for a rate hike by the Federal Reserve when it meets next on July 16-17.

However, most market observers believe the interest rate path would be measured and gradual, and would be strictly based on the economy’s macro data. In other words, short-term interest rates would still be low and nowhere close to what is considered as “normal.”

Needless to say, investors looking for income probably have to wait a little longer before cash flows from income generating funds turn steady. Maybe not with the debut of the Global X SuperDividend Alternatives ETF (ALTY). The new fund is Global X’s sixth addition to its “super dividend” series that covers nearly everything from emerging markets to preferred stocks.

ALTY tracks the SuperDividend Alternatives Index, a gauge designed to measure and rank the highest dividend yielding securities across an array of alternative investments. The categories included in the index can be broadly classified into four distinct groups including 1) MLPs and infrastructure, 2) real estate, 3) institutional managers and 4) derivative and fixed income strategies.

While the institutional managers’ portion invests in listed private equity companies and business development companies (BDCs), the derivative and fixed income part invests in closed-end funds that mainly provide exposure in various debt securities and options-writing strategies.

BDCs are closed-end investment companies that mainly invest in debt and equities of small private and public listed companies. BDCs are regulated under the Investment Companies Act of 1940 and essentially invest in businesses ranging between $5 million and $100 million in valuations.  The weighting of each category are so adjusted to ensure each category contributes equal amount of volatility to the fund.

ALTY’s 30-day SEC yield has been an impressive 8.35 percent, which is rather tempting. The fund’s oversized yield can be, in part, attributed to the Global X SuperDividend REIT ETF (SRET), which alone contributes 24.72 percent of ALTY’s net assets. According to Global X, SRET’s 30-day SEC yield has been calculated at 9.14 percent.

The new fund’s annual expense comes at a rather high 3.03 percent, which is about five times the ETF industry average. That reinforces the saying “there’s no such thing as a free lunch on Wall Street.”

Disclosure: No holdings

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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