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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.

Bolster Income with Mortgage REITs– November 2020*
Authored by: Coulter Regal, CFA

The yield on the benchmark 10 Year U.S. Treasury ticked up to levels not seen in several months, ending October at 85 basis points. However, yields for most other income categories remained relatively stable during the month, ending mostly in line with September levels. Despite the increase in U.S. Treasury yields, rates are still far below levels seen even just one year ago, when the 10 Year Note was yielding almost double today’s rate. With expectations of continued dovish Federal Reserve (Fed) actions, investors seeking to generate income from their portfolios will likely need to explore options outside of traditional corporate or sovereign debt.

One area that income investors may want to consider are mortgage REITs (mREITs), which we believe offer attractive income potential, historically yielding more than equity REITs and many other income-oriented securities. mREITs generally invest in mortgage securities, loans, and operate in other areas of the mortgage and real estate ecosystem. Exposure to interest rate- and credit-sensitive assets in combination with leverage is what allows mREITs to offer attractive yields. However, this also subjects them to elevated risks that investors should consider when making an allocation.

Mortgage REITs took a hit during the COVID-19 market sell-off, but despite a modest recovery, they are still trading well below early year highs, offering a potentially attractive entry point for investors. Beyond cheap valuations, further bolstering attractiveness is friendly Fed action meant to stabilize and support the mortgage markets. The Fed has indicated that it will maintain easy policy going forward, which we believe will be supportive of the mREIT business model by keeping funding costs low. At the same time, the central bank is also supporting the industry through monthly purchases of mortgage-backed securities, worth billions of dollars, as part of its quantitative-easing program. The last time the Fed stepped in to this degree was in 2008, and in 2009 and 2010 mREITs outperformed the S&P 500. While mortgage REITs currently exhibit attractive characteristics, it is important to note that risks do exist with much of the real estate industry still in flux as shutdowns remain in place in certain areas of the country and the path towards economic recovery remains somewhat unclear.

The VanEck Vectors® Mortgage REIT Income ETF (MORT®) offers exposure to publicly traded U.S. mortgage real estate investment trusts. The Fund’s 30-day SEC yield was 12.29%, as of October 31, and with the expectation that interest rates will remain low for the foreseeable future, we view this strategy as an attractive option for investors looking to boost income from their portfolio.

VanEck Vectors Income ETFs

Ticker Fund Name 30 Day SEC Yield (%)3 Duration (Yrs) Gross Expense Net Expense
Equity Income
BIZD BDC Income ETF 12.46 -- 10.31 10.24
EINC Energy Income ETF 9.39 -- 0.45 0.45
DURA Morningstar Durable Dividend ETF 3.83 -- 1.14 0.29
MORT Mortgage REIT Income ETF 12.29 -- 0.50 0.41
PFXF Preferred Securities ex Financials ETF 5.68 -- 0.44 0.41
Municipal Income
XMPT CEF Municipal Income ETF 4.21 -- 2.02 2.02
HYD High Yield Muni ETF 3.77 6.311 0.35 0.35
ITM Intermediate Muni ETF 1.10 5.871 0.24 0.24
MLN Long Muni ETF 2.03 6.751 0.24 0.24
MAAX Muni Allocation ETF 2.90 6.231 0.35 0.35
SHYD Short High Yield Muni ETF 2.75 4.201 0.35 0.35
SMB Short Muni ETF 0.42 3.071 0.20 0.20
Corporate Bond
ANGL Fallen Angel High Yield Bond ETF 4.64 6.292 0.43 0.35
FLTR Investment Grade Floating Rate ETF 0.63 0.072 0.40 0.14
International Bond
CBON ChinaAMC China Bond ETF 3.08 0.002 3.53 0.50
EMAG Emerging Markets Aggregate Bond ETF 3.14 5.522 1.49 0.35
HYEM Emerging Markets High Yield Bond ETF 6.04 3.582 0.47 0.40
GRNB Green Bond ETF 1.39 5.242 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 4.18 5.192 0.36 0.30
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Source: VanEck (as of 10/31/20).
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 10/31/20 would have been as follows - XMPT: 4.21%MAAX: 2.90%ANGL: 4.56%FLTR: 0.38%BIZD: 12.39%DURA: 3.49%MORT: 12.19%PFXF: 5.65%CBON: 2.70%EMAG: 2.19%HYEM: 5.99%GRNB: 0.87%IHY: 4.49%EMLC: 4.15%. 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 2,943 2,943 23,738 26,379
Intermediate Government 2,694 2,694 7,487 10,637
Long Government 1,748 1,748 1,891 -66
Long-Term Bond 1,294 1,294 2,533 3,141
Emerging Markets Bond 1,107 1,107 2,110 3,442
Muni National Interm 943 943 6,115 7,808
Muni National Short 352 352 2,561 2,931
Short Government 165 165 10,911 11,679
Bank Loan 142 142 -2,812 -1,494
High Yield Muni 65 65 -230 -186
World Bond 21 21 178 113
Muni National Long -492 -492 917 1,044
High Yield Bond -541 -541 16,317 18,772
Ultrashort Bond -595 -595 8,464 9,849
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Source: Morningstar (as of 10/31/20). Not representative of fund or fund indices.

Investment Category Yields

Yield to Worst (%)
Category 10/31/20 09/30/20 10/31/19
EM USD High Yield Aggregate 7.33 7.22 8.22
Global High Yield Corporates 5.71 5.76 5.59
U.S. High Yield Corporates 5.68 5.76 5.88
EM USD Sovereigns 5.20 5.15 5.10
High Yield Municipals 4.54 4.54 4.03
EM Local Currency Sovereigns 4.46 4.48 5.13
EM USD High Yield + Investment Grade Corporates 4.07 4.10 4.57
U.S. Corporates 2.03 2.01 2.84
Preferred Securities 1.60 1.86 1.28
Municipals 1.41 1.32 1.83
U.S. Aggregate 1.24 1.18 2.23
Global Aggregate 0.91 0.90 1.34
10 Year Treasuries 0.85 0.68 1.69
Treasury Inflation Protected Securities 0.81 0.68 1.85
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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 10/31/20).

Global 10-Year Sovereign Yields (%)

Source: FactSet and Bloomberg (as of 10/31/20). Based on local currency prices. Past performance is no guarantee of future results.

Investment Category Total Returns (%)

Month-End 10/31/2020 Quarter-End 09/30/2020
Investment Category 1 MO* YTD* 1 YR 3 YR 5 YR
U.S. Aggregate -0.45 6.32 6.93 5.22 4.16
U.S. High Yield Corporates 0.47 0.17 2.29 3.82 6.59
Global High Yield Corporates 0.29 0.76 3.87 3.62 6.62
EM USD High Yield Aggregate -0.53 -4.02 0.06 1.02 5.89
EM USD High Yield + Investment Grade Corporates 0.26 3.31 5.27 4.89 6.48
EM Local Currency Sovereigns 0.43 -5.92 -1.43 0.17 4.76
EM USD Sovereigns -0.03 -0.54 1.28 3.48 6.12
U.S. Corporates -0.18 6.44 7.84 6.38 5.95
U.S. REITs -0.02 5.10 6.14 5.86 5.40
Global Aggregate 0.10 5.82 6.19 4.08 3.91
Treasury Inflation Protected Securities -0.65 8.52 10.00 5.77 4.59
Municipals -0.30 3.02 4.06 4.26 3.83
High Yield Municipals 0.18 0.54 1.26 5.80 5.97
10 Year Treasuries -1.64 10.88 10.65 6.94 4.26
Preferred Securities 0.19 2.79 3.87 5.00 6.08
U.S. Dividend Stocks 1.65 -18.53 -16.07 -0.49 6.37
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VanEck Vectors Income ETF Total Returns (%)

Month-End 10/31/20 Quarter-End 09/30/20
Ticker Fund Name 1 MO* YTD* 1 YR 3 YR 5 YR LIFE Commenced
Equity Income
BIZD BDC Income ETF -4.31 -23.49 -18.92 -2.54 4.54 2.06 02/11/13
EINC Energy Income ETF 0.15 -34.78 -33.85 -15.20 -11.98 -14.69 03/12/12
DURA Morningstar Durable Dividend ETF -1.94 -8.80 -1.26 -- -- 6.08 10/30/18
MORT Mortgage REIT Income ETF -0.14 -36.63 -33.56 -10.55 0.68 3.18 08/16/11
PFXF Preferred Securities ex Financials ETF 1.38 0.47 -0.04 4.14 5.61 5.28 07/16/12
Municipal Income
XMPT CEF Municipal Income ETF -0.32 0.37 1.51 4.23 5.73 6.01 07/12/11
HYD High Yield Muni ETF 0.05 -3.59 -3.16 2.75 3.93 6.71 02/04/09
ITM Intermediate Muni ETF -0.28 3.55 4.02 4.42 3.99 4.45 12/04/07
MLN Long Muni ETF -0.35 3.33 3.64 5.07 4.77 4.33 01/02/08
MAAX Muni Allocation ETF -0.19 -2.64 -2.08 -- -- 0.69 05/15/19
SHYD Short High Yield Muni ETF 0.07 -0.83 -0.18 2.92 2.56 2.71 01/13/14
SMB Short Muni ETF -0.13 2.59 3.35 2.41 1.89 2.37 02/22/08
Corporate Bond
ANGL Fallen Angel High Yield Bond ETF 0.64 4.62 6.98 4.93 8.85 8.05 04/10/12
FLTR Investment Grade Floating Rate ETF 0.14 1.30 1.96 2.54 2.38 1.60 04/25/11
International Bond
CBON ChinaAMC China Bond ETF 1.90 7.00 8.45 3.32 1.75 1.61 11/10/14
EMAG Emerging Markets Aggregate Bond ETF 0.20 -1.09 1.36 2.59 4.95 2.62 05/11/11
HYEM Emerging Markets High Yield Bond ETF 0.11 0.53 3.89 2.92 6.38 5.05 05/08/12
GRNB Green Bond ETF -0.32 6.20 6.53 2.84 -- 4.80 03/03/17
IHY International High Yield Bond ETF 0.21 1.33 4.92 3.08 6.05 5.01 04/02/12
EMLC J.P. Morgan EM Local Currency Bond ETF 0.34 -5.33 -2.07 -1.43 3.36 0.49 07/22/10
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Month-End 10/31/20 Quarter-End 09/30/20
Ticker Fund Name 1 MO* YTD* 1 YR 3 YR 5 YR LIFE Commenced
Equity Income
BIZD BDC Income ETF -4.73 -24.08 -19.03 -2.59 4.54 2.06 02/11/13
EINC Energy Income ETF 0.23 -34.40 -33.79 -15.18 -11.97 -14.72 03/12/12
DURA Morningstar Durable Dividend ETF -2.46 -9.13 -1.11 -- -- 6.19 10/30/18
MORT Mortgage REIT Income ETF 0.06 -36.42 -33.44 -10.61 0.69 3.18 08/16/11
PFXF Preferred Securities ex Financials ETF 0.76 -0.19 -0.03 4.29 5.54 5.32 07/16/12
Municipal Income
XMPT CEF Municipal Income ETF -0.30 0.06 1.26 4.08 5.68 5.98 07/12/11
HYD High Yield Muni ETF -0.23 -3.88 -3.27 2.75 3.93 6.70 02/04/09
ITM Intermediate Muni ETF -0.41 3.43 4.25 4.51 3.97 4.45 12/04/07
MLN Long Muni ETF -0.50 3.42 3.95 5.33 4.90 4.36 01/02/08
MAAX Muni Allocation ETF -0.54 -2.88 -1.93 -- -- 0.83 05/15/19
SHYD Short High Yield Muni ETF -0.85 -1.77 -0.05 3.11 2.74 2.76 01/13/14
SMB Short Muni ETF -0.05 2.55 3.59 2.52 2.00 2.38 02/22/08
Corporate Bond
ANGL Fallen Angel High Yield Bond ETF 0.93 4.53 6.86 4.92 8.90 8.07 04/10/12
FLTR Investment Grade Floating Rate ETF 0.15 1.19 2.00 2.44 2.40 1.60 04/25/11
International Bond
CBON ChinaAMC China Bond ETF 1.46 8.17 9.36 3.76 2.17 1.78 11/10/14
EMAG Emerging Markets Aggregate Bond ETF -0.02 -1.74 0.70 2.49 5.07 2.61 05/11/11
HYEM Emerging Markets High Yield Bond ETF -0.10 0.16 4.21 3.02 6.47 5.10 05/08/12
GRNB Green Bond ETF -0.27 6.46 6.73 2.90 -- 4.92 03/03/17
IHY International High Yield Bond ETF -0.47 0.66 5.20 3.04 6.12 5.02 04/02/12
EMLC J.P. Morgan EM Local Currency Bond ETF 0.03 -5.47 -1.05 -1.31 3.43 0.51 07/22/10
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