Hans Lee
5 minutes reading time
For the past few years, inflation has been a top concern for policymakers worldwide, which led to a sharp rise in interest rates and a moderation in financial conditions. Now, as 2025 goes into full swing, a shift seems to be on the horizon.
Recently, the Reserve Bank of Australia (RBA) cut the cash rate for the first time since November 2020. The 25basis point cut saw the official cash rate drop from 4.35% to 4.1%, and had an immediate flow-on effect to mortgage and term deposit rates. One commentator has even suggested that term deposits offered by some banks with a rate of 5% p.a. or more may now have “a target on their back”1.
In this environment, high-yield ETFs that offer attractive income could become particularly appealing for income investors who could see the yields on other investment options fall if the RBA decides to continue reduce interest rates in the future.
In this article, we explore three ETFs that could be considered by investors seeking attractive regular income.
Navigating yield opportunities in a lower inflation landscape
In a potentially more ‘stable’ interest rate landscape, investors could consider high-yield assets like dividend-focused equity ETFs. Lower inflation means investors’ returns are less susceptible to erosion from rising prices, which could facilitate real income growth from such investments.
However, these options should be weighed against an investor’s willingness to navigate a higher risk spectrum for greater income potential.
It’s important to note the 12-month distribution yields provided in this article are retrospective. Past yield metrics and performance are not an indicator or guarantee of future distribution or dividend payments or performance.
3 high-yield ideas for your portfolio
1. Nasdaq 100 Yield Maximiser Fund (managed fund) (ASX: QMAX)
QMAX Nasdaq 100 Yield Maximiser Fund (managed fund) provides investors with regular income along with exposure to a portfolio of the top 100 companies listed on the Nasdaq stock market.
Comprising a mix of stocks primarily focused on the technology, communication services and consumer discretionary sectors, the fund’s portfolio currently includes tech companies like Apple, NVIDIA and Meta, along with consumer ‘favourites’ like Tesla and Costco#.
But this isn’t an ordinary equities fund: to seek to achieve higher-than-normal yields, it employs a covered call strategy – explained in this video – to enhance dividend income. It offers a way to play the US technology sector while offering an attractive income yield.
Key facts
- 12-month historical distribution yield as at 31 January 2025*: 5.6%
- Distribution frequency: Quarterly
2. Australian Top 20 Equity Yield Maximiser Fund (ASX: YMAX)
YMAX Australian Top 20 Equity Yield Maximiser Fund (managed fund) focuses on generating attractive quarterly income from a portfolio of the 20 largest companies listed on the ASX. Some of the sectors represented in this fund’s portfolio includes financials, materials and health care. The fund’s current holdings include BHP, Commonwealth Bank, CSL and Wesfarmers#.
Like QMAX, YMAX employs a covered call strategy to seek to enhance its yield, which could make it appealing to income investors seeking relatively higher yields than the underlying share portfolio over the medium term.
Key facts
- 12-month historical distribution yield as at 31 January 2025*: 7.5% (Gross yield: 9.1%)
- Total franking level over the 12 months to 31 January 2025**: 48.2%
- Distribution frequency: Quarterly
3. Australian Bank Senior Floating Rate Bond ETF (ASX: QPON)
For those seeking income with defensive characteristics, QPON Australian Bank Senior Floating Rate Bond ETF offers exposure to senior floating-rate bonds issued by Australian banks.
Australian bank senior floating rate bonds historically have had a high level of capital stability, and limited capital variability in equity market declines. These bonds rank higher in a bank’s capital structure than equity and hybrid securities. That means, in the event of default of the issuer, bondholders are prioritised for repayments over hybrid securityholders or shareholders, reducing risk while still providing attractive yields.
This fund may present an attractive option for investors looking to reduce portfolio risk while benefiting from a regular income stream, given the relatively low default risk of senior bank bonds. 80% of the portfolio’s bonds are issued by the Big Four banks.
Key facts
- 12-month distribution yield as at 31 January 2025*: 5.5%
- Distribution frequency: Monthly
The role of high-yield ETFs
As interest rates start to fall, incorporating alternative income-generating investments into your portfolio can be a prudent move to preserve or enhance yields.
High-yield ETFs, such as the ones discussed in this article, could help to provide a balanced approach to income generation, growth and volatility within an investor’s portfolio. These investments may enable investors to take advantage of income opportunities as interest rates stabilise or decline.
However, it’s crucial to ensure that these options align with your risk appetite and investment goals, allowing for a thoughtful approach to navigating the evolving economic landscape.
# No assurance is given that these companies will remain in the fund’s portfolio or will be profitable investments.* Yield is calculated by summing the prior 12-month net or gross (as applicable) per unit distributions divided by the closing net asset value per unit at the end of the relevant period. Future distribution yields may differ due to various factors, including changes to the unit price and number of units on issue, as well as changes in market conditions. Yield will vary and may be lower at time of investment. Past performance is not indicative of future performance.** Not all Australian investors will be able to receive the full value of franking credits.
There are risks associated with an investment in QMAX, YMAX and QPON, including:
- for QMAX, market risk, use of options risk, sector concentration risk and currency risk;
- for YMAX, market risk and use of options risk; and
- for QPON, interest rate risk, credit risk, bank sector risk and market risk.
Investment value can go up and down. An investment in each fund should only be considered as a part of a broader portfolio, taking into account your particular circumstances, including your tolerance for risk. For more information on risks and other features of each fund, please see the applicable Product Disclosure Statement and Target Market Determination, both available on this website.
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