Tag Archives: apple

5 More Dividend ETFs For Your Consideration

Summary These five dividend ETFs have similar expense ratios but very different yields. Sector analysis shows that the portfolios have some very material differences. SPHD, SDY, and NOBL all work for investors that want to handle their investing in the technology sector on their own. The one that catches my eye for high yield and utility allocations that may go on sale during December is SPHD. One of the areas I frequently cover is ETFs. I’ve been a large proponent of investors holding the core of their portfolio in high quality ETFs with very low expense ratios. The same argument can be made for passive mutual funds with very low expense ratios, though there are fewer of those. In this argument I’m doing a quick comparison of several of the ETFs I have covered and explaining what I like and don’t like about each in the current environment. The Five ETFs Ticker Name Index DLN WisdomTree LargeCap Dividend ETF WisdomTree LargeCap Dividend Index DGRW WisdomTree U.S. Dividend Growth ETF WisdomTree U.S. Quality Dividend Growth Index SPHD PowerShares S&P 500 High Dividend Portfolio ETF S&P 500® Low Volatility High Dividend Index SDY SDPR Dividend ETF S&P High Yield Dividend Aristocrats Index NOBL ProShares S&P 500 Dividend Aristocrats ETF S&P 500® Dividend Aristocrats® Index By covering several of these ETFs in the same article I hope to provide some clarity on the relative attractiveness of the ETFs. One reason investors may struggle to reconcile positions is that investments must be compared on a relative basis and the market is constantly changing which will increase and decrease the relative attractiveness. For investors that want to see precisely which assets I’m holding, I opened my portfolio earlier in November. Dividend Yields I charted the dividend yields from Yahoo Finance for each portfolio. You may notice that despite each of these portfolios being named for dividends, the yields on the ETFs are significantly different. Expense Ratios These funds are all very comparable on expense ratios which is nice for creating a more direct comparison. (click to enlarge) Sector Assuming your decision isn’t based strictly on yields, the next area to look into is the sector allocations. There were clearly no big differences in expense ratios, so this race should really come down to getting a strong enough yield and getting a great sector allocation. I built a fairly nice table for comparing the sector allocations across dividend ETFs to make it substantially easier to get a quick feel for the risk factors: (click to enlarge) First Glance The first thing I would expect investors to notice is that there are a few areas where one or two of the ETFs have vastly different allocations from their peers. The most obvious standouts in this regard are NOBL allocating nearly 28% to the consumer defensive sector and SPHD allocating over 24% to the utility sector. NOBL Since I see a fairly expensive market, I find the heavier allocation to the consumer defensive sector to be appealing. If the market undergoes a severe correction then I would want to be more aggressive with the portfolio when it appeared the worst had passed. In the later stages of a bull market or entering a bear market I’d rather focus on the consumer defensive sector. It is interesting to note that the technology allocation here is zero. If investors feel very confident in analyzing technology companies, it could make NOBL a great fit for them since the lack of technology companies within the fund would work out well for an investor that was managing their own investments in the sector. SPHD SPHD uses a very heavy allocation to utilities. For investors that already build their own utility positions in their portfolio, this wouldn’t be a great fit since it would double up on the exposure. On the other hand, for the investor that does not have utility exposure in their portfolio, the ETF could be a great fit. The utility sector often demonstrates some correlation with bonds because investors treat it as an alternative source of income. This may be a fairly volatile sector going into December because investors are expecting the Federal Reserve to raise rates and if a rate increase is confirmed it could send bond yields higher and utility stocks would be expected to fall at the same time so that the dividend yields would increase. For investors willing to take the exposure on utilities if the stocks go on sale, the middle of December could bring Christmas a little early with sales in the sector. SPHD also offers the highest yield which may be very attractive for investors seeking to grow more income immediately. Similar to NOBL, SPHD has a very low weight for the technology sector. The combination of high yield, utility exposure, and no technology makes it ideal for the dividend growth investor that focuses their research time on technology. What do You Think? Which dividend ETF makes the most sense for you? Do you want to overweight consumer staples for more safety in a downturn or would you rather have more upside in a prolonged bull market? Do you want to own the oil companies, or do you foresee gas as being in a long term downtrend that makes the business model much weaker?

IJR: A Small Cap ETF With A History Of Beating Peers

Summary IJR has very solid diversification within the portfolio. No holdings were listed over .7% and most were below .5%. The ETF has a great expense ratio that is comparable to funds from Schwab and Vanguard. The fund is heavy on the financial sector. The fund reports a beta of .84; however my calculations through InvestSpy suggested a beta of 1.16 for 5 years which was similar to other ETFs holding the same size. The iShares Core S&P Small-Cap ETF (NYSEARCA: IJR ) looks like a fairly reasonable ETF for investors seeking more exposure to small capitalization markets. The fund tracks the S&P SmallCap 600 Index which covers about 3% of the domestic equity market. Stocks in the index have a market capitalization between $400 million and $1.8 billion at the time of entry, though those criteria may fluctuate over time as market valuations change. The securities within the index are selected for liquidity and for industry group representation. The fund uses a passive strategy (also known as indexing) to track the underlying index. The portfolio is not actively managed in an attempt to beat the index and the portfolio will not shift to become more or less defensive based on management’s perspective of whether the market is over or under valued. The prospectus for IJR indicates that the fund uses representative sampling to track the index. That strategy involves selecting companies based on the total portfolio resembling the index. However, when I checked the holdings of the fund there were a hair over 600 individual holdings which is more than I would expect for representative sampling. Expenses The expense ratio is a .12%. This is a very reasonable expense ratio in my estimation. I tend to be fairly cheap on expense ratios and when the ratios go over .15% for domestic ETFs, I find the costs are simply too high and rarely believe that the underlying methodology for selecting stocks will generate enough additional returns before expenses to pay for the expense ratios. For comparison, funds from Vanguard and Schwab are ranging expense ratios from .08% to .09% for exposure specifically to small capitalization stocks. Dividend Yield The dividend yield is currently running 1.41%. For the investor that wants a very strong dividend yield to support them in retirement, this is still too low to qualify. However, for investors that simply want to generate total returns on a risk adjusted basis with increased exposure to small capitalization companies, the fund is still perfectly reasonable. Holdings I created the following chart to demonstrate the weight of the top 10 holdings: (click to enlarge) None of the holdings are over .7% and it seems the most rational way to analyze the fund is to look at the sector allocations. The sector exposure may change over time as the fund follows the index, but this is as close as we can come to assessing the current risk factors. Sectors The fund is heavily overweight on the financial sector and heavily underweight on some of the more defensive allocations such as utilities and consumer staples. For me, that would indicate a more aggressive strategy than I would prefer to use. However, if the investor is buying into the small cap space on the assumption of a prolonged bull market, than this allocation may be very reasonable for them. Conclusion All around this looks like a solid fund. The expense ratio is very reasonable and the holdings include substantial diversification to reduce the impact of any single negative company-specific events. The sector allocation is a little more aggressive than I would have preferred but overall the fund offers precisely what many investors in the small capitalization space would want. The interesting thing for me regarding the risk factors is that the latest fact sheet for the fund indicated that the fund had a beta of only .84. Based on those calculations it would appear that the fund is less volatile than I would expect from the representation of the sectors. I wanted comparable numbers to other ETFs holding small capitalization stocks. I ran a comparison through InvestSpy for the last five years and found a beta of 1.16 using their methodology. Clearly the methodology and the time frame used will have a material impact on risk assessments. The value I calculated on InvestSpy put IJR around the middle of the pack for the beta scores among ETFs investing in small capitalization stocks. On the other hand, their trailing 5 year return was beating every other comparable ETF with returns over 92%. This put them just behind the S&P 500 for the period. The results are demonstrated below. (click to enlarge) When I ran the same test with a time period of 2 years, rather than 5 years, the beta calculated dropped down to .99. In this case, the apparent volatility is materially impacted by the time span that is chosen.