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WisdomTree ETF Avoids Volatile Financials

By: Investor's Business Daily
Posted: 7/3/2012 5:11:00 PM
Referenced Stocks: BAC;DTN;FTR;GS;JPM

Some sectors are hot, while others are not. For example, big banks such asJPMorgan Chase ( JPM ), Goldman Sachs ( GS ) andBank of America ( BAC ) are still well off their peaks from 2007 and 2008.

For income investors who don't want volatility due to exposure to sovereign debt, loan losses or regulatory issues in the financial sector, there's theWisdomTree Dividend ex-Financial ( DTN ) exchange traded fund.

The ETF tracks an index that goes by the same name and tracks the performance of domestic dividend-paying stocks, excluding financials.

"It can serve as a hedge against further financial sector volatility while focusing on a set of stocks that we believe display attractive dividend characteristics for the current market environment," WisdomTree's Director of Research Jeremy Schwartz and Research Analyst Christopher Gannatti wrote in a report.

The ETF is rated four out of five stars by Morningstar. It has a beta of 0.77, meaning that it has lower volatility than a market proxy such as the S&P 500. A beta greater than 1.0 equals more volatility than the market.

Based on its latest four quarterly distributions, the ETF has a yield of 3.5% compared to about 2.5% for the S&P 500.

The ETF has climbed 4% so far this year and has been consolidating moderately since April.

Nearly 14% of the ETF's assets are in utilities. Consumer staples also make up about 14%, while materials account for an 11% weighting.

The fund has some stocks with low IBD Ratings such asFrontier Communications ( FTR ) and Southern Copper (SCCO). But these have big dividend yields of 10% and 6.5%, respectively.

Some stocks with better IBD Ratings are in the ETF, too.

Verizon Communications (VZ) is near its best levels in more than 10 years. The stock is up about 12% from a 44 buy point in a double-bottom base. Fellow telecom giant AT&T (T)is at a four-year high. It cleared a 32.07 buy point from a cup-with-handle base in April.

Tobacco makerAltria Group (MO) is trading near an all-time high after clearing a 32.72 buy point from a shallow base last month.