Tag Archives: lists

S&P 500 Investors Get New Choice For Direct REIT Exposure

By Ronald Delegge Real estate investment trusts (REITs) have long been buried inside the S&P 500 but have now received a giant promotion. S&P Dow Jones Indices and MSCI — the index providers who jointly maintain the GICS system for organizing industry sectors — decided to create a stand-alone real estate sector. As a result, S&P Dow Jones Indices has launched two new sector indices that break out financial services companies and real estate firms from within the existing S&P 500 Financials Select Sector Index. The new ETF – the Real Estate Select Sector SPDR ETF (NYSEARCA: XLRE ) currently owns 25 real estate stocks or “REITs” that are all members of the S&P 500. XLRE will differ from other real estate ETFs like the SPDR Dow Jones REIT ETF (NYSEARCA: RWR ) because of its primary focus on a small pool of U.S. large-cap REITs. In contrast, RWR owns 97 U.S. based REITs with a market cap size that is large, mid, and small. Additionally, XLRE does not hold mortgage REITs. The GICS method was created by MSCI and Standard & Poor’s in 1999 and is a four-tired, hierarchical classification system. GICS allows investors to identify and analyze a customized group of companies using a common global standard. The existing Financial Select Sector SPDR ETF (NYSEARCA: XLF ), which follows the broader financial sector, will not be impacted by the change. Both real estate and financials will continue to be covered inside XLF and remain a choice for investors looking for broad-based exposure to financials. Disclosure:None Share this article with a colleague

Dollar Weakens; Time For Large-Cap Value ETFs?

The economic outlook looks misted up yet again by undesirable global events. The Chinese economy is striving to ease a hard landing; Japan is also seeing deceleration in its growth pace; European markets are far from steady despite a QE policy; capitals are gushing out of emerging markets and most importantly, recent reports out of the lone star in the developed market pack, the U.S. economy, aren’t quite favorable thanks to a soft labor market. Added to this, heightened speculations about the Fed lift-off have taken a backseat. While muted inflation and global growth worries had held back the Fed from ratifying a rate hike in its September meeting, a slowdown in the labor market over the last three months have almost killed the possibility of a hike at the December Fed meeting, guarantying cheap money inflows throughout this year. As a result, equities jumped and the greenback dived. And the case for large-cap ETF investing had never been stronger than now. Investors should note that a subdued greenback sets the stage of large-cap stocks’ outperformance as this group of companies has considerable exposure in the international market. So, foreign profits are curtailed in a stronger dollar environment when repatriating back home. That being said, we would like to note that levels of uncertainty have flared up in the investing world. This is truer given the fact that the IMF recently slashed its global growth forecast for 2015 and 2016. Back home, the Fed also cut the expectation for 2016 real GDP growth to 2.1─2.8% from 2.3─3.0% though the same for 2015 was upgraded to 1.9─2.5% from 1.7─2.3% projected in June. The Fed also lowered its 2015 projection for personal consumer expenditure inflation to 0.3─1.0% from 0.6─1.0% guided in June. The earnings picture looks equally gloomy as the S&P 500 earnings and revenues are expected to decline 5.7% each in the third quarter. This does not leave the U.S. market without doubts and mean that some investors might want to look at large caps for the vast majority of their exposure, and especially so in the value space. While one can do this with individual securities, there are a number of value-focused large cap ETFs that can be better choices. Below, we highlight four of such large-cap value ETFs which delivered smart returns in the last one-month frame and could be intriguing choices ahead should the market forces remain the same. First Trust Morningstar Dividend Leaders Index ETF (NYSEARCA: FDL ) This fund follows the Morningstar Dividend Leaders Index with AUM of $810 million in its asset base. In total, the fund holds 99 stocks. From a sector look, consumer staples, utilities, telecom, energy and industrials each take a double-digit allocation in the basket (read: 5 Investor-Friendly Dow Dog ETFs for 2015 ). Expense ratio comes in at 0.45%. The fund added over 5.8% in the last one month (as of October 12, 2015) and has a dividend yield of 3.60% annually. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. iShares Core High Dividend ETF (NYSEARCA: HDV ) This product provides exposure to 74 dividend stocks by tracking the Morningstar Dividend Yield Focus Index. From a sector look, the fund is well spread out with double-digit exposure to Energy, Consumer Staples, Health Care, Telecom and Information Technology. This Zacks Rank #3 fund is among the largest ETF in the large cap space with AUM of about $4.17 billion. It charges 12 bps in fees per year and gained over 5.1% in the last one year. The fund has an annual dividend yield of 3.86%. First Trust Value Line Dividend ETF (NYSEARCA: FVD ) This ETF tracks the Value Line Dividend Index, giving investors exposure to about 209 companies that have a Value Line Safety Ranking of #1 or #2. Value Line selects those companies that have higher-than-average dividend yield as compared with the indicated dividend yield of the Standard & Poor’s 500 Composite Stock Price Index. This results in an equal weight approach for individual securities. Utilities takes the top spot at 22.7% of assets, followed by Financials (18%), Industrials (14.9%) and Consumer Staples (12%) (read: 5 Smart Beta ETFs to Beat the Choppy Market ). The Zacks Rank #3-fund is a bit pricier than many other products in the dividend space, charging investors 70 bps a year in fees. It has accumulated $1.4 million in its asset base. SPDR Dividend ETF (NYSEARCA: SDY ) This ultra-popular fund provides exposure to the 101 U.S. stocks that have been consistently increasing their dividend every year for at least 25 years. It follows the S&P High Yield Dividend Aristocrats Index and has amassed $12.6 billion in AUM. Expense ratio comes in at 0.35%. The product is widely diversified across components as each security accounts for less than 2.82% of total assets. Financials is the top sector taking up one-fourth of the portfolio while consumer staples (15.1%), industrials (13.7%), utilities (11.6%) and materials (11.2%) round off the next four spots. The fund was up nearly 4.6% in the last one-month and has a Zacks ETF Rank of 3. Link to the original post on Zacks.com

Dividend ETFs Battle It Out: Get The Right Sectors

Summary There are three big dividend ETFs from the major low cost index providers, Charles Schwab and Vanguard. Two of the three still offer yields over 3% and all three have excellent expense ratios. Investors deciding which one to buy should look at the sector allocation. These ETFs have some major differences in their allocations. Investors seeking high consumer staples exposure should look to SCHD and VIG. Investors wanting more financial exposure should look at VYM. SCHD and VYM both offer around 10% exposure to the energy sector, but VIG has very little allocation there. If you want oil in the portfolio, SCHD and VYM make. Can you smell what the dividend ETF champions are cooking? There are a few big dividend ETFs for broad exposure to companies offering respectable dividend yields. In this article I want to compare a few of them. Let’s meet the big contenders: Name Ticker Yield Expense Ratio Schwab U.S. Dividend Equity ETF SCHD 3.02% 0.07% Vanguard Dividend Appreciation ETF VIG 2.26% 0.10% Vanguard High Dividend Yield ETF VYM 3.10% 0.10% For investors that prefer to see those numbers in graphs, I put together a couple quick charts: First Impressions Investors right away may notice that the Vanguard Dividend Appreciation ETF doesn’t have a very high yield compared with the other dividend ETFs. It may be rational for investors looking at it to ask whether it should really be considered a high dividend ETF. While the Schwab U.S. Dividend Equity ETF technically only has 70% of the expense ratio of Vanguard’s options, the difference of .03% is not material. There is no viable way to spin the difference into being material. Assuming your decision isn’t based strictly on yields, the next area to look into is the sector allocations. I grabbed the sector allocations for each ETF: (click to enlarge) (click to enlarge) (click to enlarge) Sector Analysis The first thing that I’m noticing when I look at the sectors is that two of these funds go heavily overweight on consumer staples. When it comes to dividend ETFs, I like going overweight on consumer staples. Consumer Staples The nice thing about the consumer staples sector is that they are defined by the production of products that consumers will need regardless of what else is happening in the economy. Any sector can run into problems, but the kind of macroeconomic issues that can really slam my portfolio value should have a smaller hit on the earnings (and thus dividend potential) of companies in the consumer staples category. Of course, there is no free lunch. In exchange for getting companies that should be more resilient, I have to accept that during a prolonged bull market these companies are likely to rally less than other sectors. If my focus was strictly designing the portfolio for the highest projected total long term return, it would be very reasonable to argue against going heavy on consumer staples. It is up to each investor to determine how they feel about that trade off. If the investor wants more certainty that the underlying companies can sustain their dividends because they intend to use the dividends to cover living expenses, then the importance of those dividends being sustained is more important. Having to sell off part of the portfolio during the kind of recession that sees dividend cuts across the combined portfolio would be pretty painful. Financials Where SCHD and VIG put consumer staples at the top, VYM puts financials at number one. This is very interesting because SCHD placed it at 1.99% and VIG weighted it at 6.37%. Clearly the structure of the portfolio is materially different. There are some very good reasons to like the financial sector for investments. At the top of my list would be the demographic analysis showing that Generation Y is fairly weak at understanding money . If the next generation is less capable of understanding their money, then there may be more opportunities for the financial firms to make money off complicated products that the consumers don’t fully understand. That may sound cynical, but who cares? My goal is to understand where sales and profits will be flowing. If you own shares in the banks, would you encourage the CEO to ensure they have transparent pricing even if cuts earnings and means a smaller dividend? I really doubt shareholders would be thrilled to hear “We cut the dividend to make up for a cash shortfall from lowering prices when the current pricing system was working well.” My concern about aggressive allocations to the financial sector comes from regulation. If we see more regulatory pressure or cases brought against large banks for unethical actions in the pursuit of profit, the development could represent declining margins (from regulatory pressure) or cash expenses to settle cases. Energy SCHD and VYM both put energy over 10% of the portfolio. VIG holds it as just over 1% of the portfolio. There are some fairly different kinds of companies that can be considered “Energy” companies. When energy refers to enormous companies with strong dividends like Exxon Mobil (NYSE: XOM ), I like that allocation. If it was referring to much more volatile industries like off shore oil drilling, I wouldn’t be a fan. In the case of SCHD, XOM is the heaviest single holding. The same can be said for VYM. While the energy sector has been punished with oil prices at very low levels and no clear path higher, I see those issues as being priced into the shares. As long as the issues are already priced in, I want some exposure that would benefit from higher gas prices. Lower fuel prices mean more money for consumers to spend on other goods and services. If the low fuel price trend ends, I’d like to at least have the upside from earnings going up for a big dividend payer in the portfolio. 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?