Tag Archives: alternative

VYM: A Quality Dividend Growing ETF

Summary Features great dividend growth and diversification across sectors. Traditional low Vanguard expense fees keep your costs down. Lags, though closely follows the S&P for total return. Fund 10% down for the year creates a buying opportunity. Solid ETF choice to balance with SCHD for long-term income generation. Introduction The Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) is a quality ETF by Vanguard, the leader in low-cost ETFs. The fund tracks the FTSE High Dividend Yield Index which tracks stocks that are forecasted to have above-average dividend yields. The fund applies no type of quality metric or additional screening to the companies. It also excludes REITs. It currently has 434 holdings and carries an expense ratio of 0.10%. The Holdings VYM holds a wider variety of stocks than the Schwab U.S. Dividend Equity ETF ( SCHD), which I wrote about in another article . (click to enlarge) To compare, both funds are light on materials while SCHD is also very light on utilities, financials and telecommunications. A few basic stats, the top 10 holdings make up 30% of VYM, 42% of SCHD, and the top 25 makes up 58% of VYM vs. 74% for SCHD. Dividend Growth VYM has also featured great dividend growth the last several years. We need to see what the December dividend is, but using the trailing 12-month period (last raise announced 9/23/15), it grew 12.4% this past year, and has a 3-year average of 12.7%. Performance Inception to-date performance vs. the S&P has slightly lagged as mentioned in the summary. This return is assuming all dividends reinvested. Data courtesy of DividendChannel. (click to enlarge) I like to compare this with SCHD’s inception to-date results to get a closer apples-to-apples comparison of a dividend based ETF. (click to enlarge) SCHD has lagged VYM since its inception by a percentage point each year. One other comparison point between VYM and SCHD is looking at their top holdings. Since their top holdings make up the majority of the funds, it’s important to see how they are similar and where they differ. This information may help an investor decide which fund to buy into (if it’s an either/or scenario) based on the business prospects of a company(ies) that may be absent from a fund. The green colors mean the company is contained within both funds, red means that one is not contained within the other (for example Wells Fargo (NYSE: WFC ) and AT&T (NYSE: T ) are not in SCHD) and yellow denotes they are in the other fund, just not the top 30. Why Now? The market has been off its highs in 2015 as there are now several factors weighing on the market. Looking at the past 5 years, the yield has never been higher. It briefly touched over 3% during the corrections of 2011 and 2013, but has sustained 3%+ for the last few months of 2015. This offers a historically good entry point. The sharp rally of the past week has pushed the yield down however from approximately 3.42% to 3.25%. VYM data by YCharts Conclusion VYM is another great ETF product by Vanguard. The fund has had a solid track record of performance, delivering growing dividends while closely following the performance of the S&P 500. The yield is still over a percentage point higher than the S&P for investors focusing on generating more income while still delivering great total return. I like the prospects of both VYM and SCHD and think they can be compared to one another whether adding to an existing or opening a new position.

The Right International Dividend ETF Right Now

There have been a few international dividend ETFs that have stood firm, indicating that if investors decide to return to ex-US equities, these funds could become leaders. The WisdomTree International Hedged Dividend Growth Fund is up about two-thirds of a percent over the past three months. Bolstering the case for IHDG for the remainder of 2015 is the potential for the Bank of Japan to add to its already massive monetary stimulus program. By Todd Shriber, ETF Professor As international stocks, both developed and emerging markets, have flailed in recent months, the best that can be said of some international-dividend exchange-traded funds is that these funds have only been less bad than their counterparts that are not dedicated dividend ETFs. The good news is there have been a few international dividend ETFs that have stood firm, indicating that if investors decide to return to ex-U.S. equities in a big way, these funds could become leaders. Put the WisdomTree International Hedged Dividend Growth ETF (NYSEARCA: IHDG ) in the more positive group. The Fund And Her Index The WisdomTree International Hedged Dividend Growth Fund is up about two-thirds of a percent over the past three months. Not a jaw-dropping showing, but still solid when acknowledging the laggard performances turned in by an array of international equity ETFs. IHDG, which has needed just 19 months of trading to rake in over $495 million in assets under management, tracks the WisdomTree International Hedged Quality Dividend Growth Index ( WTIDGH ). That currency-hedged benchmark “is comprised of the top 300 companies from the WisdomTree DEFA Index with the best combined rank of growth and quality factors. The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three year historical averages for return on equity and return on assets,” according to WisdomTree , the fifth-largest U.S. ETF issuer. Speaking of being solid, the WisdomTree International Hedged Quality Dividend Growth Index was WisdomTree’s second-best index during the third quarter. “The WisdomTree International Hedged Quality Dividend Growth Index (Int. Hedged Quality Dividend Growth) was the next best. It’s notable that this Index had an exposure of fewer than 50 basis points to the Energy sector, and it also mitigates exposure to movements of the U.S. dollar versus its underlying mix of 12 currencies,” said WisdomTree in a note out Wednesday . IHDG levers to investors to the theme of growing Japanese dividends. Previously stingy, but cash-rich, Japanese companies are boosting dividends and buybacks at a rapid pace by that country’s historically lethargic standards for shareholder rewards. Switzerland, perhaps the steadiest dividend growth market in continental Europe, is IHDG’s third-largest country. Combined, the U.K., Japan and Switzerland are 43.3 percent of the ETF’s weight. The Fund’s Advantage Though neither IHDG’s currency hedge nor its dividend growth emphasis should imply the ETF is immune from downturns in international markets, it is notable that the fund is up 5.2 percent year-to-date compared to a loss of almost 1.1 percent by the MSCI EAFE Index. Bolstering the case for IHDG for the remainder of 2015 is the potential for the Bank of Japan to add to its already massive monetary stimulus program. “We believe it is possible we will see coordinated action from the BOJ and the fiscal side in November and therefore think that Japan exposures should remain in focus-whether from a sector or broader-based approach,” said WisdomTree. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Investors Should Avoid This New Fund-Of-Funds ETF

Summary The IQ Leaders GTAA Tracker ETF was just launched at the end of September. It’s designed as an “ETF of ETFs,” but its high expense ratio makes it less than an ideal choice for long-term investors. I offer two alternatives that would achieve a similar investment objective to this ETF at a much lower cost. I have a generally negative sentiment when it comes to “fund of funds” products whether they are mutual funds or ETFs. The main reason is that I think many of them layer on unnecessary fees for investors and can generally be replaced by an index mutual fund or ETF that charges a razor-thin expense ratio (the Vanguard funds, for example). I found myself feeling that way again when the IQ Leaders GTAA Tracker ETF (NYSEARCA: QGTA ) was launched at the end of September. This ETF is designed to be an “ETF of ETFs,” and looks to, according to the fact sheet , “track the performance and risk characteristics of the 10 leading global allocation mutual funds.” What it’s doing essentially is taking the most popular sector ETFs and investing in order to maximize the fund’s risk/return profile. The fund’s holdings are detailed below: (click to enlarge) There are a couple of things that immediately stand out to me when looking at this list. All of these products are managed by either State Street (NYSE: STT ), Vanguard or BlackRock (NYSE: BLK ). These companies are very low-cost providers generally speaking, and each of these ETFs have an expense ratio in the range of 0.07% to 0.20% (with the exception of the SPDR Barclays Capital Convertible Bond ETF (NYSEARCA: CWB ) that carries a 0.40% expense ratio and the iShares iBoxx USD High Yield Corporate Bond ETF (NYSEARCA: HYG ) with a 0.50% expense ratio). So individuals would be paying very little to invest in any of these funds. According to the fund’s fact sheet, this new ETF is charging a 0.60% annual expense ratio. Keep in mind that this fee is charged on top of the expenses that are already being charged by each ETF individually and that additional expense charge really adds up over time. Consider the two graphs below (courtesy of Vanguard’s website ): This examines how an expense ratio erodes the return of an investment over time. In this example, I use an estimated expense ratio of 0.20% (a close estimate of what someone would pay investing in each of these ETFs individually) and an average return of 6% annually. Over a 50-year time frame on a $10,000 investment, returns lost to expenses come to a total of $111,606. A large number to be sure, but take a look at what the GTAA Tracker ETF would do over time. With the same assumptions, except using an expense ratio of 0.80% (the 0.60% charge of the fund plus the individual ETF expense ratio already detailed above), the total lost to expenses jumps to $385,760. That’s over $250,000 (roughly a third of the fund’s returns) that is being paid over time to the fund managers instead of staying in your own pockets. That’s a lot of money sacrificed for not managing the ETFs one’s self. Which brings me to my second point. Most people, understandably, don’t want to manage a portfolio of ETFs and reallocate them regularly. That’s where the fund-of-funds concept holds its appeal. But investors can do better. If you look at the fund’s holdings, you’ll find that the total allocation works out to roughly 47% stocks and 53% bonds. I’ve written before about how the Vanguards Wellington Fund (MUTF: VWELX ) is one of the best mutual funds for retirement out there. It maintains an allocation of roughly 2/3 stocks and 1/3 bonds, so it doesn’t perfectly match this ETF’s allocation, but it’s still a good comparison. Wellington’s sister fund, the Vanguard Wellesley Income (MUTF: VWINX ) is another option for more conservative investors with its 1/3 stocks and 2/3 bond allocation. Both of these funds are rated 5 stars by Morningstar and carry expense ratios of just 0.25%, putting them closer to the low-cost category than the GTAA Tracker ETF. Conclusion While there’s nothing inherently wrong with the investment choices made within this ETF (in fact, most are among the lowest-cost choices within their chosen class), the high expense ratio of this fund makes it less than ideal for long-term investors. Trimming fund expenses is the easiest way to improve the long-term returns in one’s investment portfolio. I’ve offered two alternatives that combine both an excellent long-term performance record and low costs, leaving more of the investment return where it belongs. For the time being, investors should look for other alternatives to this ETF.