How to build a ‘lazy’ passive income portfolio with just 1 UK ETF

Building a passive income portfolio isn’t hard these days. In fact, it’s incredibly easy.

Here, I’m going to reveal how an investor could potentially build a portfolio that’s capable of providing a fantastic income stream with just one investment fund. If you’re interested in taking a ‘lazy’ approach to portfolio construction, this product could be worth a closer look!

An ETF with a fantastic yield

The product I want to highlight today is the WisdomTree Europe Equity Income UCITS ETF (LSE: EEI). It’s an exchange-traded fund that offers exposure to high-yielding, dividend-paying companies in both the UK and Europe.

With this ETF, an investor gets exposure to a whole basket of high-yield stocks with just one click. Examples of stocks in the portfolio include HSBC Holdings, Rio Tinto, BP, and AXA SA.

Currently, around 20% of the ETF’s allocated to UK stocks. The other 80% is spread out over stocks in European countries such as France, Spain, and Italy.

As for the yield, it’s about 5% at the moment. That’s significantly higher than the yield on the FTSE 100 index (roughly 2.9%) and much higher than the interest rates most UK savings accounts are paying now.

Three benefits of this ETF

To my mind, this product has a lot going for it (beyond the attractive dividend yield). I like the fact that it offers exposure to both UK and European companies. This means it provides far more diversification than a simple FTSE 100 or UK equity tracker fund.

I also like the fee structure. Ongoing fees are only 0.29% – that’s very reasonable.

Finally, I like the fact that the ETF can be held inside a Stocks and Shares ISA. This means that any income generated can be completely tax-free.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

What’s the catch?

Of course, it’s not perfect. With a focus on high-yield dividend stocks (which are often low-growth value stocks), it may not generate as high total returns (dividends plus share price gains) as some other ETFs.

Last year, it did really well, returning a whopping 28% in total (in euro terms). However, since its inception in 2014, it has only returned about 6.4% a year all up.

Another issue is that it’s possible to find higher yields in the market from individual stocks. For example, on the London Stock Exchange today, there are plenty of stocks that yield 7% or higher.

An ideal core holding for income?

I think it could potentially be a great foundation for a passive income portfolio however, and is worth considering as an income play. With just one product (and an ISA), an investor could generate a tax-free income stream of around 5%.

They could then add a few individual high-yield dividend stocks on top to boost their yield. You can find plenty of information on these kinds of stocks right here at The Motley Fool.

The post How to build a ‘lazy’ passive income portfolio with just 1 UK ETF appeared first on The Motley Fool UK.

More reading

• 3 brilliant funds for passive income in the UK

Edward Sheldon has positions in London Stock Exchange Group. HSBC Holdings is an advertising partner of Motley Fool Money. The Motley Fool UK has recommended HSBC Holdings and London Stock Exchange Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

See author's posts