Published November 21, 2012
As the old saying goes, it is difficult teaching an old dog new tricks. Some psychologists might argue it is even harder to get humans to change their ways. When it comes to investors' application of ETFs, trying to change old habits can prove to be a laborious task.
That much is borne out in a Wall Street Journal piece published earlier this month about new dividend ETFs. In the essence of fairness, that article is by no means a "hit piece." However, it is standard fare regarding new ETFs.
Even some professionals do not like the unfamiliar and unknown, that much is highlighted by the sources quoted in the aforementioned piece. This goes back to the argument of letting new ETFs age as of they barrels of single-malt scotch. The difference is there standard time frames at which scotch becomes perfectly aged.
No one has come up with such uniformity for ETFs. As such, "new" is often equated with excessive levels risk. At least that is the implication made by those that stick with older dividend ETFs. The other side of the coin is that there is a cost for comfort in the form of missed returns. These new-ish ETFs prove that fact.
Global X SuperDividend ETF (SDIV) The Global X SuperDividend ETF does allocate about 29 percent of its country weight to the U.S., but this is ETF is more appropriately classified as an international fund. SDIV, which made its debut in June 2011, may not qualify as new per se, but it is part of the next generation of dividend ETF concepts.
The fund is a also a shining example of how long some investors, even the pros, take to embrace solid new ETF ideas. It took SDIV 14 months of trading to reach $100 million in assets under management. Since reaching that lofty perch in August, SDIV's AUM total has grown by 60 percent.
SDIV has a 30-day SEC yield of 7.72 percent and pays a monthly dividend, but it is likely that as a "new" ETF, some pros have passed it over in favor of the more seasoned SPDR S&P International Dividend ETF (PWX) and the PowerShares International Dividend Achievers ETF (PID).
With volatility of 14.3 percent, SDIV is up 9.7 percent this year. PID has roughly the same volatility but is up just five percent year-to-date. DWX is 50 percent more volatile than PID and SDIV, but that fund is higher by just a tenth of a percent. In other words, despite its age, SDIV is one of the best bets among international ETFs.
PowerShares S&P 500 High Dividend Portfolio (SPHD) The PowerShares S&P 500 High Dividend Portfolio is barely more than a month old and that alone is reason enough for some investors to ignore this ETF. SPHD has also fallen victim to bad timing as fiscal cliff clears have punished the utilities and telecom sectors, which combine for 31 percent of SPHD's weight.
Still, SPHD has almost $23 million in AUM, which is not bad for a month of work. The 30-day SEC yield is 4.74 percent. What makes SPHD interesting, particularly after its rocky start performance-wise, is that the ETF combines two of investors' favorite themes: Low volatility and high dividends. Some folks will stay on the sidelines with this ETF, but do not be surprised if SPHD becomes another member of the $100 million in AUM club over the next 12 months.
Market Vectors Preferred Securities ex Financials ETF (PFXF) What if an asset manager told one of his or her clients not to jump into a new dividend ETF until it has developed more of a track record and what if that conversation was about preferred stock funds? Well, the asset manager had better hope the client does not find out about the Market Vectors Preferred Securities ex Financials ETF.
For those that think dividend ETFs can only be sliced and diced so many ways, as one source quoted in the Journal piece does, think again. PFXF turned the world of preferred stock ETFs on its ear by altogether shunning bank stocks that account for 80 percent to 90 percent of rival funds. PFXF is not only cheap than its major rivals (0.40 percent expense ratio), it has outperformed those rivals since its July debut.
First Trust NASDAQ Technology Dividend Index Fund (TDIV) Like SPHD, the First Trust NASDAQ Technology Dividend Index Fund has suffered through a case of bad timing. The fund debuted in August and has not delivered the goods in terms of performance because the Nasdaq has faltered.
TDIV has a bright future, though, and here is why. Not only is technology the largest sector weight in the S&P 500, it is also now the biggest dividend-paying sector in the U.S. Additionally, this sector is where true dividend growth is going to come from over the next few years (probably longer) because of all the cash the likes of Apple (AAPL), Cisco (CSCO) and Microsoft (MSFT) have sitting on their balance sheets.
The problem with old generation dividend ETFs is that many screen their constituents based on length of consecutive dividend increase streaks. That leads to a lot of funds holding the usual suspects such as Coca-Cola (KO) and Procter & Gamble (PG), but many of those ETFs skimp on technology stocks. For example, the Vanguard Dividend Appreciation ETF, the largest U.S. dividend ETF, allocates just 6.4 percent of its weight to tech.
As more investors appreciate the tech sector as a dividend haven, TDIV should flourish. As it is, the fund has $41.2 million in AUM and that is not too shabby in just four months of work.
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