Since the financial crisis, investors have frequently heard
that buy-and-hold investing is dead. At the same time, dividends
have taken on increased importance in portfolios. Simple math
dictates that in order for investors to gain the maximum benefit
from dividend stocks and ETFs, those vehicles cannot be traded as
The performance of several marquee dividend ETFs this year
reminds investors that these funds, and the stocks held by them,
are most potent over longer time horizons. This is the reality of
plenty of noteworthy dividend ETFs in 2012: Many are seeing
, but are still lagging broader market funds. That is the case
even when accounting for dividends paid.
All this while the amount of dividends on a monthly basis
set a record at $34 billion in August
Even some ETFs tracking sectors known for being home to
prodigious dividend payers have had problems significantly
outpacing the SPDR S&P 500 (NYSE:
). The Health Care Selector Sector SPDR (NYSE:
) and the iShares Dow Jones U.S. Telecommunications Sector Index
) have outpaced SPY by 300 and 420 basis points, respectively,
when accounting for paid dividends. Conversely, the Consumer
Staples Select Sector SPDR (NYSE:
) trails SPY by 360 basis points year-to-date and the Utilities
Select Sector SPDR (NYSE:
) is behind SPY by 950 basis points.
Not Just Sector Funds
Sector funds known for being home to solid dividends and decent
yields are not the only dividend-based ETFs trailing the broader
market this year. More importantly, it is those funds with
"dividend" in the names that are relative laggards.
Take the example of the Vanguard Dividend Appreciation ETF
), the largest dividend ETF by assets. VIG is up nine percent
this year with dividends paid, but to get that return, investors
have had to deal with 11.5 percent volatility,
according to ETF Replay data
. SPY has offered 540 basis points more in return with just
another 120 basis points in volatility.
It is not fair to solely pick on VIG, though. The average
year-to-date return for the SPDR S&P Dividend ETF (NYSE:
), the iShares High Dividend Equity Index Fund (NYSE:
) and the Schwab Dow Jones U.S. Dividend Equity ETF (NYSE:
) is 10.7 percent.
The reminder that ETFs such as these are long-term plays comes
when looking at the three-year returns against SPY. In this case,
HDV and SCHD were dropped because neither is three-years-old and
the WisdomTree Total Dividend Fund (NYSE:
) was added. Since October 23, 2009, DTD, SDY and VIG are up an
average of 41.7 percent with dividends paid. That tops the
S&P 500 by 270 basis points and all three ETFs have been less
volatile than SPY over that time.
Sectors Winning In 2012
Matching up four select sector SPDRs and IYZ against the
aforementioned dividend funds on a year-to-date basis proves
interesting as well. The four SPDRs chosen were XLP, XLV, the
Financial Services Select Sector SPDR (NYSE:
) and the Technology Select SPDR (NYSE:
). XLF and XLK were chosen because the sectors tracked by the
have been the primary drivers of dividend growth
in the U.S. this year
. Technology and financial services are also the largest sector
weights in the S&P 500.
Given VIG's low weights to financials and technology (just
over six percent in both cases), it is not surprising XLF has
blown that fund away this year. However, XLF is up 23.3 percent
year-to-date, meaning it trounces a lot of ETFs out there.
Again, it is not fair to pick on just VIG. Neither, HDV nor
SCHD have anything more than scant allocations to financials and
technology issues and that is a large part of the reason these
ETFs have lagged XLF and XLF.
Emerging Markets, Too
Emerging markets are getting on the dividend action, too. Earlier
this year, UBS said the 300 largest non-financial firms in the
MSCI Emerging Markets Index
are expected to pay $52.2 billion in dividends in
2012, up from $48.9 billion last year
That is solid growth on a year-over-year basis, but the
numbers indicate the emerging markets dividend theme will take a
while to mature. Translation: Emerging markets dividend ETFs are
long-term investments, too, and that much is highlighted by the
Take the WisdomTree Emerging Markets Equity Income Fund (NYSE:
ETF that has more than doubled in size this
. When accounting for paid dividends, DEM has lagged the Vanguard
MSCI Emerging Markets ETF (NYSE:
) by 240 basis year-to-date,
according to ETF Replay data
The same trend is spotted at the small-cap level where the
WisdomTree Emerging Markets SmallCap Dividend Fund (NYSE:
) has lagged the SPDR S&P Emerging Markets Small Cap ETF
) by a wide margin this year.
As is the case with U.S.-focused dividend ETFs, stretch the
time frame out for emerging markets dividend ETFs and the result
is superior returns. Over the past 36 months, DEM and DGS are up
22.4 percent and 22.8, respectively. VWO and EWX are up 9.2
percent and 6.3 percent. DEM and DGS have also been less volatile
over that time than VWO and EWX.
For more on dividend ETFs, click
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.