Dividend ETFs have not gone out of style at any point this
As a group, income-generating, equity-based funds are one of
2013's most prolific asset-gathering sub-segments of the ETF
universe. With interest rates still low on a historical basis and
cash-rich companies initiating new payouts or boosting existing
dividends at an impressive pace, it stands to reason dividend
ETFs would continue to be embraced by investors.
Yet not all dividend ETFs were impervious to the surge in
10-year Treasury yields caused by speculation the Federal Reserve
would trim its bond-buying program. Those focused on REITs and
MLPs or those funds with large allocations to traditional
dividend havens such as consumer staples and utilities felt some
pain as tapering chatter caused rates to rise.
Rising Rates A Problem For Some Dividend ETFs
Tapering is not dead, but the Fed did confirm it will leave
its asset-buying program in place as it currently stands. Should
that remain the case over the coming months, income investors
should consider the following ETFs.
PowerShares S&P 500 High Dividend Portfolio (NYSE:
) The PowerShares S&P 500 High Dividend Portfolio will
celebrate its first birthday next month and it is fair to say it
has been a successful debut year for the fund. At least from an
asset-gathering prospective as SPHD now has $135.4 million in
assets under management.
Understanding why SPHD has proven popular in a short amount of
time is easy. The fund marries two popular concepts:
Dividends and low volatility
. SPHD tracks the S&P 500 Low Volatility High Dividend Index,
which means the fund's holdings are comprised of high-yields
stocks that are also low beta names.
That means large allocations to utilities (24.4 percent) and
consumer staples (almost 16 percent) and that explains SPHD's
somewhat disappointing performance a tapering talk escalated.
Eight of the ETF's top-10 holdings are utilities or staples
names. SPHD is up about one percent in the past month and offers
income investors the advantage of a monthly dividend, something
many of its larger rivals do not offer.
WisdomTree U.S. Dividend Growth Fund (NASDAQ:
) The WisdomTree U.S. Dividend Growth Fund is proof positive
investors need not weight on new ETFs to become "seasoned" or
mature before jumping in. By no fault of its own, DGRW has an
infamous debut date: May 22, the day tapering talk really entered
the conversation, but the ETF
has proven sturdy since then
Over the past 90 days, DGRW is up 6.7 percent, a performance
that puts it well ahead of the SPDR S&P Dividend ETF (NYSE:
) as just one example. DGRW is a "no tapering" play because the
ETF should be durable regardless of what the Fed decides to do
with its easing program.
The new fund has no exposure to rate-sensitive telecom and
utilities names, explaining why it has performed well in recent
months. Importantly, DGRW is built to perform in rising rate
environments as well. Consumer discretionary and industrials, the
two best-performing sectors when rates rise, combine for over 40
percent of the fund's weight.
DGRW also allocates 26 percent of its combined weight to
technology and financial services, two of the leaders of S&P
500 dividend growth in recent years, and the ETF pays a monthly
For more on ETFs, click
Disclosure: Author is long SPHD and DGRW.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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