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5 Overlooked Dividend ETFs Worth Buying Now

With a rates hike on the cards and higher bond yields, the three-year incredible journey of dividend stocks and ETFs hit the brakes in the first half of 2015. In fact, dividend ETFs saw a rough stretch in the same period with outflows of over $2 billion. This is especially true as the Fed is on track to raise interest rates sometime later this year, albeit at a slower pace, provided the job market continues to show improvement. Bond yields have risen for much of this year, taking away the sheen from these stocks. However, the return of volatility in the stock market and uncertainty across the globe has rekindled investors’ love for the products that provide stability and safety in a rocky market. Nothing seems a better strategy than picking dividend-focused products in this kind of an environment. In particular, the Chinese stocks have been on a wild ride over the past few days, Europe is struggling with slower growth, the Japanese economy lost its momentum and many emerging economies is experiencing a slowdown despite rounds of monetary easing. Further, a strong dollar and lower oil prices have added to the global growth worries. Dividend-focused products offer safety in the form of payouts while at the same time provide stability in the form of mature companies that are less volatile to the large swings in the stock prices. The dividend paying securities are the major sources of consistent income for investors to create wealth when returns from the equity market are at risk. This is because the companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis. That being said, we highlight five dividend ETFs for investors seeking yields and returns in a rocky market. Though investors overlook these funds due to their lower AUM of under $500 million, they yield at least higher than the S&P 500, making them excellent choices in the current market turmoil. iShares Core Dividend Growth ETF (NYSEARCA: DGRO ) This fund provides exposure to the companies having a history of consistently growing dividends by tracking the Morningstar U.S. Dividend Growth Index. Holding 326 stocks in its basket, the fund has a well-diversified exposure across various sectors and securities. Industrials, consumer staples, consumer discretionary, health care and technology are the top five sectors with double-digit allocation each and none of the securities accounts for more than 3.02% of assets. The fund has AUM of $208.9 million and trades in volume of about 50,000 shares. Expense ratio came in at 0.12%. The ETF is modestly up 0.8% in the year-to-date timeframe and has a good dividend yield of 2.26%. It has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. PowerShares Dividend Achievers Portfolio ETF (NYSEARCA: PFM ) This fund has amassed $324.1 million in its asset base and trades in lower volume of around 37,000 shares a day on average. Expense ratio came in at 0.55%. The product provides exposure to the companies that have increased their annual dividend for 10 or more consecutive fiscal years by tracking the NASDAQ U.S. Broad Dividend Achievers Index. The fund is widely diversified across various securities, each accounting for less than 4.2% share. From a sector look, about one-fourth of the portfolio is dominated by consumer staples, while industrials (13.5%), energy (11.4%), and information technology (10.7%) round off the next three spots. PFM is down 1.9% so far this year and has an annual dividend yield of 2.13%. The fund has a Zacks ETF Rank of 3 with a Medium risk outlook. FlexShares Quality Dividend Defensive Index ETF (NYSEARCA: QDEF ) With AUM of $192 million, the product fund follows the Northern Trust Quality Dividend Defensive Index, which offers exposure to a high-quality income-oriented portfolio of U.S. stocks with an emphasis on long-term capital growth and a beta higher than the Northern Trust 1250 Index. In total, the fund holds 197 stocks in its basket that are well spread out across securities with none holding more than 4.04% of assets. In terms of sector holdings, financials, information technology, consumer staples, consumer discretionary and health care are the top five sectors. QDEF trades in a paltry volume of about 17,000 shares while charges 37 bps in expense ratio. The fund has gained 1.8% in the year-to-date timeframe and has a good dividend yield of 2.50% per annum. Global X Super Dividend U.S. ETF (NYSEARCA: DIV ) This fund provides exposure to the highest dividend yielding U.S. securities by tracking the INDXX SuperDividend U.S. Low Volatility Index. It has amassed $285.2 million in its asset base while trades in moderate volume of about 94,000 shares. The ETF charges 45 bps in fees per year from investors. Holding 51 securities in its basket, the product is widely diversified across each component as none of these holds more than 2.65% of assets. However, utilities accounts for one-fourth of the portfolio, closely followed by real estate (23%), energy (13%) and consumer staples (12%). The product has a high annual dividend yield of 7.14% and is down about 7% so far this year. It has a Zacks ETF Rank of 3 with a Medium risk outlook. Guggenheim S&P Global Dividend Opportunities Index ETF (NYSEARCA: LVL ) For investors seeking global exposure, LVL seems an intriguing pick. This fund follows the S&P Global Dividend Opportunities Index, holding 99 securities in its basket. It is well diversified across components as each security holds no more than 3.3% share. From a sector look, energy and financials take the top two spots with 27.3% and 22.1% share, respectively. In terms of country exposure, the U.S., Canada, Australia and United Kingdom make up for the top four countries with double-digit exposure each. The ETF has accumulated just $65.5 million in AUM and sees light average daily volume of less than 28,000 shares. It charges 65 bps in fees per year from investors and has an impressive yield of 7.05% per annum. The fund has lost 10.6% in the year-to-date timeframe. Link to the original article on Zacks.com

Vanguard Energy ETF: Should You Take A Dose Of Oil?

Summary Oil companies seem like a solid natural hedge against higher oil prices and the negative impacts oil prices can have on the economy. VDE has heavy concentration in one company, but I like that holding. The big surprise for me was that high correlation between VDE and the rest of the domestic market. Due to volatility and the high correlation, it appears very difficult to use VDE to reduce total portfolio risk. The low expense ratio is great, but that is not enough to get me to buy into an ETF. When I started looking at the Vanguard Energy ETF (NYSEARCA: VDE ), it looked like a natural fit for my portfolio. The fund is offering diversification while buying up the big oil companies. When it comes to oil, my theory is simple. Holding oil should be a natural hedge to some of the other risks in the economy. When oil prices are doing great, the rest of the economy should be hit by higher gas prices that reduce the amount of capital for consumers to spend at other businesses. The cost of doing business for corporations that rely on physically moving assets should be higher which would compress margins. It is reasonable to assume that VDE should be a great hedge for some of the portfolio risk. I have a bias towards buying high-quality ETFs when I see their prices “dip”. Lately that has been great for me as it has helped me acquire better prices on several of the ETFs I’m holding. On the other hand, if we were to have another major recession where the market fell by 40%, I would’ve been all in by the time the market was down to 5% to 10% and scrambling to get more dry powder to buy more shares when prices were even lower. Largest Holdings The diversification within the ETF is terrible. That sounds like a huge problem, but in this rare case it is not a major issue. If I was going to buy one company to try to hedge against higher oil prices, I would probably pick Exxon Mobil (NYSE: XOM ). That is running around 21% of the portfolio of VDE, as shown below: (click to enlarge) Since XOM is one of the first companies I would want to add to the portfolio, I see VDE as offering diversification for 79% of the investment. From that perspective, the diversification adds a fairly solid benefit relative to only holding one of the major oil producers. When I’m comparing the concentration to the other ETFs I choose, there is no way I would accept so much concentration in any of the other ETFs. Surprises When I ran the statistical analysis over the last 5 years, I was surprised to see the results. I expected oil to appear fairly volatile after the problems the oil market has seen in the last year. Despite expecting some volatility, I wasn’t expecting these results. (click to enlarge) When I ran the ETF through InvestSpy to check the statistics, the high beta stood out to me. I was expecting a lower beta for the ETF, because I thought the correlation would be lower. Instead, using the last 5 years, the correlation was running at 84%. To run some quick math, when the volatility is almost 50% higher than SPY and the correlation is greater than 80%, you’re not going to find any diversification benefits showing up in the statistical analysis relative to just holding SPY. Regardless of how small the weight was for VDE, it would hurt the total portfolio volatility unless the starting portfolio was very strange. To demonstrate that point, I ran a sample portfolio that was 99% Vanguard Total Stock Market ETF (NYSEARCA: VTI ). I use VTI for a substantial portion of my portfolio because I value the diversification. I’m not using it as 99%, but I think this demonstrates precisely the challenge in using VDE. (click to enlarge) When an ETF is only used for 1% of the portfolio, even high levels of volatility can be dealt with by simply diversifying away the risk. However, the high correlation between VDE and the domestic U.S. market is preventing it from gaining those benefits. Double Dipping on Exposure The simplest argument for VDE having such a high correlation with the total stock market ETF and with the S&P 500 would be that XOM is already an enormous company and thus it is influencing both ETFs. However, the problem with that argument is that XOM is only 1.53% of the VTI portfolio. Expense Ratio The expense ratio is only .12%, which is a good reasonable ratio. Unfortunately, a low expense ratio is not enough by itself to get me to invest in a fund. Conclusion I like the idea of increasing my oil exposure and regularly rebalancing the position after seeing how far some of the sector has fallen. Despite that desire, the combination of volatility and correlation makes it much harder for me to justify using a heavy exposure to the sector. Perhaps I need to measure the returns over longer sample periods such as quarters at a time to test for lower correlation levels. That might reduce the correlation of returns, and I’m more likely to assess the performance of my portfolio on a monthly or quarterly basis. I look for opportunities to invest more often than that, but I don’t want to sweat minor changes. Disclosure: I am/we are long VTI. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.

An International ETF That Has It All (And It’s Cheap)

Investors have widely favored international exchange traded funds over U.S.-focused equivalents this year. The preference has been for developed markets funds even with emerging markets equities trading at compelling discounts. Nearly 18 percent of VXUS’s weight is allocated to emerging markets equities. By Todd Shriber, ETF Professor Investors have widely favored international exchange traded funds over U.S.-focused equivalents this year. Eight of the top 10 asset-gathering ETFs on a year-to-date basis are international ETFs while just one of the 10 worst ETFs in terms of outflows is an international fund. The preference has been for developed markets funds even with emerging markets equities trading at compelling discounts. For investors looking for exposure to both developed and emerging markets under the umbrella of a single fund, there is the Vanguard Total International Stock Index Fund ETF (NASDAQ: VXUS ) . VXUS is up almost 1.6 percent year-to-date, a performance that lags the S&P 500 and other major developed market benchmarks, but one that is also sturdy when considering the weakness in emerging markets stocks. VXUS features nearly 40 countries in its portfolio with weights ranging from 0.1 percent for four nations to 17.6 percent for Japan. VXUS “is dominated by blue-chip multinationals, which during the past few years have benefited from improving productivity, cheap financing, and exposure to faster-growing emerging markets. Most of these firms are in good financial shape. However, now that the U.S. Federal Reserve’s quantitative-easing program has ended, there is uncertainty as to how monetary policy will be managed and how it might ultimately affect global asset prices–especially considering that valuations across most major asset classes appear to be somewhat stretched,” according to a Morningstar research note . Other Advantages VXUS has some other advantages. With its wide-ranging country exposure, VXUS holds nearly 5,900 stocks across all cap spectrums. That is the deep bench strategy that is the hallmark of so many Vanguard ETFs and one that ensures the firm’s broad market ETFs offer investors all-encompassing or close to all-encompassing exposure to a region or regions. Even when adding up a popular, diversified developed markets ETF with an equivalent emerging markets fund, investors would find it difficult to get exposure to nearly 5,900 stocks. Nearly 18 percent of VXUS’s weight is allocated to emerging markets equities. The ETF tracks an index from FTSE Russell, which classifies South Korea as a developed market. Asia’s fourth-largest economy is 2.9 percent of VXUS. Another VXUS perk, and it is one Vanguard investors are familiar with, is a low expense ratio. VXUS charges just 0.14 percent per year, or $14 per $10,000 invested. Europe looms large in VXUS with developed and emerging European countries combining for over 47 percent of the ETF’s weight. “At this time, the European Central Bank is doing whatever it can to preserve the European Union and prevent the eurozone from going into a deflationary spiral. During the past few years, European equities, as measured by the MSCI Europe Index, have recovered from 2012 lows. However, this rally was muted for investors in this fund because of the falling euro against the U.S. dollar. The MSCI Europe Index, in U.S. dollars, returned 7.6% in the two-year period through July 2015; in local currencies, the index returned 13.2%,” said Morningstar. 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. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.