What is the downside to an ETF?

Question

The question has been here before. The usuals aside, I'm wondering about an ETF 1) weathering a "run on the bank" type of withdrawals, 2) a reduction of (in the case of high yield dividend ETFs) dividends among the holdings in the ETF, 3) the ability of the fund to pay dividends consistently.

That said, why are investors leaving a high yield fund that's holdings based upon current share price is paying out a dividend of %16?! (DWX) Share prices on high yield corporate ETFs are dropping like a rock and I salivate at the thought of buying in. However-- ( one of the "on the surface" downsides) share prices continue to drop. Well ok, cost average down down down. Each purchase just gets juicier and juicier.

Ok tell me what's wrong with my picture? (and please go easy on me, I've been 13 rounds with the market). Thanks!

Answer 1

The yields are rising because the prices are falling. Yields will probably go down as well if the depression continues and it could be a long time before you get you money back. But trackers are safer than single companies so your system does have merits.

Answer 2

I assume you are really talking about ETF's in the high yield corporate market place only.  The issue with these ETF is that if the underline holdings all go belly up then the 16% ddividends go to zero %.  Also are you sure about the 16% dividend or is it a 16% Yield.  As the share prices drop the Yields will continue to go up.  This is not an issue with strong well funded companies.  But give the number of "AA" and "AAA" bonds which are actually JUNK status, it's very risky investing in these  type of investments.  What you really need to understand is what are the true value of the underline assets securing these bonds and are they going to still be there in the future.