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Four ETF Yield Traps to Avoid

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While there are plenty of ETFs that can help investors generate high yields, some of these high yielders look poised to fall into yield traps.

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It's no secret in an environment of depressed yields for Treasuries and money markets that income investors are all but forced to consider equities. And it's no secret that there are scores of solid ETFs that can help investors generate decent income.

After Tuesday's big tumble for the broader market, dozens of ETFs now fit into the category of "high yielders," but there is a dark side to some of these funds. Dark side as in some of these yields look poised to keep rising because the ETF's share price is going to keep falling.

Here is a sampling of plain vanilla long ETFs that have serious yield trap potential. The parameters for our screen were yields above 3% and average daily volume of better than 50,000 shares.

1. Global X Copper Miners ETF (COPX) Currently sporting a dividend yield north of 3.6%, the Global X Copper Miners ETF is a fine ETF to be involved with from the long side when everyone is feeling cheery about the global economy, China in particular. It's not the ETF one wants when China and the eurozone both issue disappointing GDP forecasts and reports in the same week. Adding to the fundamental concerns, COPX is now in technical danger.

2. iShares MSCI Austria Investable Market Index Fund (EWO) Here's the rub with EWO: Austria is probably in better shape than the PIIGS, Belgium, and maybe even France. That doesn't change the fact that Austria is still a eurozone member and that EWO is one of the higher beta developed Europe ETFs on the market.

In fairness, it should be acknowledged EWO has drummed up double-digit returns this year and now sports a yield of almost 3.6%. That may make it appear as though EWO is a better place to stash some cash than a money market, but that decision will likely be a regrettable one on any day when the PIIGS generate glum headlines. Not to mention, EWO still languishes below its 200-day moving average, indicating the fund has snapped out of its downtrend.

3. Market Vectors Solar Energy ETF (KWT) Heading into the start of trading today, the Market Vectors Solar Energy ETF was down "just" 1.3% to start the year, and not to be trite, but that's decent when it comes to solar stocks and ETFs. KWT has a juicy yield of almost 5.4%, but there are just too many moving parts (China, European subsidies, etc.) to really get behind the solar industry. If the fundamentals don't keep you away from KWT, look at the ETF's chart.

Let's just leave it at this: Beware of single-digit ETFs sporting high yields because there's probably a reason why the ETF trades below $10 and why the yield is high and the reason is probably bad. Don't fall for the Guggenheim Solar ETF's (TAN) yield of over 7% either.

4. Guggenheim BRIC ETF (EEB) Let's explain this one. The Guggenheim BRIC ETF isn't an overt yield trap, and its current yield of just over 3.3% isn't alarmingly high. Frankly, this isn't a bad ETF. However, it has two big rivals in the form of the SPDR S&P BRIC 40 ETF (BIK) and the iShares MSCI BRIC Index Fund (BKF). Both of those ETFs have outperformed the Guggenheim fund this year, and BIK features a lower expense ratio.

Editor's Note: This content was originally published on Benzinga.com by The ETF Professor.

Below, find some more great ETF and market content from Benzinga:

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Twitter: @Benzinga

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No positions in stocks mentioned.

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