Exchange traded funds (ETFs) aren't there just for investors to gain exposure to indices or countries.
They can also be a powerful tool to build a passive income stream. This is achieved by providing investors with access to large groups of dividend shares or through clever income generation strategies.
But which ASX ETFs should income investors look at? Let's take a look at three options that could be worth considering:
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Betashares Australian Top 20 Equity Yield Maximiser Fund (ASX: YMAX)
The Betashares Australian Top 20 Equity Yield Maximiser Fund could be a great option for income investors. It aims to generate quarterly income by implementing an equity income investment strategy over a portfolio of the 20 largest blue-chip shares listed on the Australian share market. Betashares recently recommended the ETF as an option to counter falling dividend yields. It said: "Betashares' range of Yield Maximiser funds use a covered call strategy to offer additional income over and above dividends generated by the portfolio. This approach takes a two-pronged strategy: earning dividends from the underlying stocks and generating income from writing call options on those shares."
At present, it trades with a trailing 12-month dividend yield of 7.6%.
Betashares FTSE RAFI Australia 200 ETF (ASX: QOZ)
Another ASX ETF that Betashares is recommending for income investors is the FTSE RAFI Australia 200 ETF. It employs a fundamental indexing strategy which is designed to screen for and own stocks based on their merits rather than market capitalisation. Instead of size, the ETF screens ASX companies using sales, cash flow, dividends, and book value. It then ranks and invests in companies accordingly. This essentially means that the fund has a portfolio of ASX shares with healthier balance sheets, which have a greater capacity to pay dividends while avoiding those who are reducing or not making payouts.
The Betashares FTSE RAFI Australia 200 ETF currently has a trailing dividend yield of 4.7%.
Vanguard Australian Shares High Yield ETF (ASX: VHY)
A final ASX ETF for income investors to consider buying is the Vanguard Australian Shares High Yield ETF. This fund gives investors access to a group of ASX dividend shares that brokers are forecasting to provide big dividend yields. But it does this with diversification in mind, restricting how much it invests in any one company or industry. At present, you will find companies such as BHP Group Ltd (ASX: BHP), Coles Group Ltd (ASX: COL), Commonwealth Bank of Australia (ASX: CBA), and Wesfarmers Ltd (ASX: WES) among its holdings.
The Vanguard Australian Shares High Yield ETF currently trades with a trailing dividend yield of 4.8%.
