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iShares To Shut Down 18 ETFs

iShares, the biggest issuer of ETFs, has planned to shut down 18 funds from its lineup. The closures reflect a lack of interest in these products in an investment world with more than 1,700 U.S. listed ETFs. The products to be closed have a combined AUM of $227 million and will be liquidated by August 21. All these funds are quite unpopular, as all have AUMs of under $50 million. Among the ones to be closed, the iShares FTSE China (HK-Listed) Index ETF (NASDAQ: FCHI ) is the most popular with an asset base of $36.3 million, followed by the iShares MSCI Emerging Markets Eastern Europe ETF (NYSEARCA: ESR ) with an AUM of $29.2 million. Most of the products to be closed down offer exposure to international stocks. Some of these include the iShares MSCI All Country Asia ex-Japan Small Cap Index ETF (NASDAQ: AXJS ) , the iShares MSCI Australia Small Cap Index ETF (BATS: EWAS ) , the iShares MSCI Canada Small Cap Index ETF (BATS: EWCS ) , the iShares MSCI Hong Kong Small-Cap ETF (NYSEARCA: EWHS ) and the iShares MSCI Singapore Small-Cap ETF (NYSEARCA: EWSS ) . Others with an international focus are the iShares MSCI Emerging Markets EMEA Index ETF (NASDAQ: EEME ) , the iShares MSCI Emerging Markets Growth Index ETF (NASDAQ: EGRW ) and the iShares MSCI Emerging Markets Value Index ETF (NASDAQ: EVAL ) . Apart from these, the issuer has also planned to shut down some sector specific funds including the iShares MSCI All Country Asia Information Technology Index ETF (AAIT ), the iShares MSCI Emerging Markets Consumer Discretionary Sector Index ETF (NASDAQ: EMDI ) , the iShares MSCI Emerging Markets Energy Sector Capped Index ETF (NASDAQ: EMEY ) , the iShares FTSE EPRA/NAREIT Asia Index ETF (NASDAQ: IFAS ) and the iShares FTSE EPRA/NAREIT North America Index ETF (NASDAQ: IFNA ) . The i Shares Financials Bond ETF (NYSEARCA: MONY ) , the iShares Industrials Bond ETF (NYSEARCA: ENGN ) and the iShares Utilities Bond ETF (NYSEARCA: AMPS ) are the three debt funds which will also face shutdown. The above closures will shrink the offerings of iShares by about 6% to 299, according to XTF, as mentioned in an article by Barron’s . BlackRock (NYSE: BLK ) – the parent company of iShares – said that the decision was “based on an ongoing process to review its product lineup and ensure it meets the evolving needs of its clients.” The closures clearly highlight the survival of the fittest funds and a healthy process to eliminate the unpopular and unwanted funds. In fact, the ETF industry recently witnessed its 500th closure of ETFs and ETNs. Nonetheless, even following the 18-fund closure, iShares will still have a large number of U.S. listed ETFs under its umbrella, with the iShares Core S&P 500 ETF (NYSEARCA: IVV ) being the most popular with an asset base of $68.7 billion. Link to the original article on Zacks.com

CMS Energy Has Good Long-Term Prospects But Substantial Short-Term Hurdles

Summary Natural gas and electric utility CMS Energy’s share price has underperformed YTD after several years of outperforming both the utilities sector average and the S&P 500. The company possesses multiple long-term earnings drivers such as a favorable regulatory structure, a rebounding service area economy, and the presence of low energy prices. In the short-term, however, the company is faced with the combination of a heavy debt load and the prospect of rising interest rates. While I believe the company’s long-term drivers outweigh short-term hurdles for investors with lengthy investment horizons, its shares will likely be available for still less in the coming year. The share price of utility holding company CMS Energy (NYSE: CMS ) has been one of the top performers in the utility sector since the beginning of FY 2010, solidly beating both the sector as well as the S&P 500 (see figure). Value investors haven’t been provided with many opportunities in recent years to invest in the firm, however, due to the relative lack of undervaluation resulting from price downturns. The company’s share price has taken its largest tumble since the 2008 financial crisis in recent months, potentially making the company an attractive option for value investors. This article evaluates CMS Energy as a potential value investment in light of its recent earnings performance and current outlook. CMS data by YCharts CMS Energy at a glance CMS Energy is a Michigan-based public utility that provides electricity, nuclear power, uranium, and natural gas to customers throughout the state, including the Detroit metro. Its primary business segment is Consumers Energy, which as a regulated utility provides natural gas and electricity to more than 6 million customers, with coverage including the Upper Peninsula, via 6,000 MW of electricity generation capacity and 2,600 MW of power purchase agreements. The majority of its electric customers are residential, with the combination of residential and commercial customers contributing 84% of its electric gross margin in FY 2014. The utility generates electricity from a variety of fossil and renewable sources. In FY 2014 its portfolio consisted of 34% coal, 32% natural gas, 11% pumped storage, 9% renewables, 8% nuclear, and 6% oil. Recent state and federal regulations discourage the use of coal to generate electricity on environmental and human health grounds have caused CMS Energy to move away from the fuel, and by 2017 it expects Consumers Energy’s portfolio to be comprised of 37% gas, 24% coal, 12% pumped storage, 10% renewables, 8% nuclear, 6% oil, and 3% purchased. CMS Energy also conducts business via CMS Enterprises, which engages in independent power production and natural gas transmission. Consumers Energy generates the overwhelming majority of its parent company’s earnings, or 97% in Q1 2015. CMS Energy suspended its dividend during the financial crisis but reinstated it during the subsequent recovery and has become a reliable dividend generator in recent years, increasing its quarterly amount from $0.15 in FY 2010 to $0.29 today. The most recent increase from $0.27 of 7% was declared at the beginning of this year, bringing its forward yield at the time of writing to 3.6%. The company expects to maintain annual dividend growth of 5% over the next several years which, given its past record, is a feasible goal barring another major economic meltdown in Michigan. Q1 earnings report CMS Energy reported its Q1 earnings report in late April, missing on the top line and beating on the bottom. Revenue came in at $2.1 billion, down 16.3% from $2.5 billion (see table) and missing the consensus analyst estimate by $250 million. The decline was mostly due to the presence of much lower natural gas prices in Q1 2015 than in Q1 2014, which drove the average price charged to customers down by 60% compared to Q1 2005. Operating income fell by only 2.7% YoY to $397 million, however, due to a 19% operating expense decline YoY (again the result of low natural gas prices) almost entirely offsetting the revenue reduction. Q1 net income remained virtually unchanged, declining very slightly from $204 million to $202 million. This resulted in a diluted EPS number of $0.73, down slightly from $0.75 YoY but beating the consensus by $0.05. While the adoption of new mortality tables and a lower discount rate resulted in a hit to EPS of $0.08, the impact of these adjustments was more than offset by a $0.14 gain resulting from a very cold winter, with record natural gas and electricity sales recorded in February, and $0.04 from cost-cutting efforts. The YoY reductions to net income and EPS were largely the result of even colder weather being present in Q1 2014 and its most recent earnings were actually up 7% on a weather-normalized basis; overall Q1 2015 was the company’s 2nd-best result in at least a decade. CMS Energy Financials (non-adjusted) Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Revenue ($MM) 2,111.0 1,758.0 1,430.0 1,468.0 2,523.0 Gross income ($MM) 983.0 852.0 775.0 746.0 948.0 Net income ($MM) 202.0 96.0 94.0 83.0 204.0 Diluted EPS ($) 0.73 0.35 0.34 0.30 0.75 EBITDA ($MM) 626.0 438.0 396.0 380.0 610.0 Source: Morningstar (2015). CMS Energy’s management reaffirmed its FY 2015 EPS guidance of $1.86-$1.89 in the wake of the earnings report’s release given the strength of the quarter. The company ended Q1 with $522 million in cash (see table), less than in Q1 2014 but still substantial in light of its asset growth and dividend increase. Its current ratio remained unchanged YoY at 1.6 while its interest coverage ratio remained solid at 2.8. Its balance sheet remains a concern, however, due to the large amount of long-term debt in the liabilities column. This increased by another $600 million over the previous four quarters to $8.1 billion at the end of Q1. While the debt is rated well, with S&P giving its secured and unsecured debt ‘A’ and ‘BBB’ ratings, respectively, its sheer size alone generated interest expenses in Q1 equal to 20% of the company’s operating income. CMS Energy Balance Sheet (restated) Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Total cash ($MM) 522.0 207.0 493.0 358.0 758.0 Total assets ($MM) 19,198.0 19,185.0 18,381.0 17,719.0 17,924.0 Current liabilities ($MM) 1,599.0 2,014.0 1,648.0 1,563.0 1,801.0 Total liabilities ($MM) 15,396.0 15,515.0 14,711.0 14,074.0 14,306.0 Source: Morningstar (2015). Outlook CMS Energy’s outlook is a mixed bag, with positive long-term drivers being offset by negative short-term hurdles. The first of the positive drivers is the economic rebound that the state of Michigan is currently undergoing following Detroit’s bankruptcy. The state’s unemployment has fallen at a faster pace than the U.S. average rate (see figure) and the two are now equal. Furthermore, Michigan’s construction industry is bouncing back and construction payrolls have grown at twice the rate over the last five years of the U.S. average, signifying new buildings and therefore new utilities customers. The combination of increased electricity demand in particular and restrictions on coal-fired facilities has created a capacity shortfall within the state that is only expected to increase with time. Recognizing that this problem can only be solved via additional capacity, the company is moving forward with regulatory approval for the acquisition of a new natural gas-fired facility, which will in turn strengthen the company’s argument for future rate increases as compensation. There is a risk, of course, that regulators will instead opt to use power purchase agreements from 3rd-party generators, on which CMS Energy recognizes no profit, to cover the shortfall. This is mitigated by the second short-term driver: Michigan’s energy policy. Michigan Unemployment Rate data by YCharts Michigan’s legislature joined many other states earlier in the century by implementing a renewable portfolio standard that, among other things, required the state’s utilities to achieve a retail supply portfolio of 10% renewable electricity by 2015. That year has arrived, however, and Michigan has not extended and increased its RPS target. Instead its legislature is in the process of implementing a new energy policy that will instead utilize Integrated Resource Plans. Under these IRPs utilities propose multi-year forecasts of supply and demand alongside the most cost-effective means of meeting the forecasts. Utilities frequently prefer IRPs to RPSs since the latter are imposed on them whereas the former are largely directed by them. Some regulatory uncertainty can be expected to occur since IRPs don’t have the multi-decade horizons of RPSs, but CMS Energy’s recent investor presentations have supported the former despite this downside. IRPs are important from the perspective of capacity shortfalls since they allow traditional utilities to meet the shortfall via the types of capacity that they are most familiar with, such as natural gas-fired facilities, rather than via less established pathways such as renewables. Michigan already operates under a favorable regulatory system, with regulators recently permitting CMS Energy a ROE of 10.3% (which was admittedly less than the company had requested) and the replacement of Michigan’s RPS with an IRP framework could make this system still more favorable. The continued presence of low natural gas and coal prices can be expected to benefit CMS Energy further still (see figure). The company has already begun to pass its cost savings for both onto its customers in the form of lower retail prices, and regulators will likely view its future rate increase requests more favorably than they otherwise would as a result. Furthermore, low natural gas prices will encourage increased consumption, supporting its transmission and distribution operations. The company already intends to add another 170,000 natural gas customers in coming years via transmission capacity investments, and increased consumption per customer due to low prices will support this further still. The company also intends to increase its owned electricity generating capacity to 8,820 MW over the coming decade as its existing power purchase agreements expire, providing its electricity operations with additional income. CMS Energy should have little difficulty achieving 5% annual EPS growth over the next several years (management hopes to achieve an annual growth rate of up to 7%) based on these investments so long as Michigan’s economy remains steady. Michigan Natural Gas Citygate Price data by YCharts The short-term hurdle that worries me the most, however, is CMS Energy’s heavy long-term debt load and relatively high interest expenses even in the current low interest rate environment. This burden has the potential to grow even heavier in the next few quarters due to the likelihood that the Federal Reserve will increase interest rates for the first time in almost a decade. Shares of dividend stocks, utilities included, have moved broadly lower this year (see figure) in anticipation of higher interest rates as investors prepare to move into government and corporate bonds. While CMS Energy’s share price has underperformed the Dow Jones Utility Average since both peaked in late January, the difference is slight enough to suggest that the second affect of higher interest rates – larger interest payments for firms such as CMS Energy with heavy debt loads – isn’t entirely being factored in yet. The company intends to incur at least 50% more capital expenditures in the coming decade than in the last ten years, suggesting that its debt load will remain large for the foreseeable future. I expect that its share price will fall further when interest rates finally rise. CMS data by YCharts Valuation Analyst estimates for CMS Energy’s diluted EPS in FY 2015 and FY 2016 have remained unchanged over the last 90 days as the company’s management reaffirmed its EPS guidance. The FY 2015 consensus estimate is $1.88 while the FY 2016 consensus estimate is $2.01. Both results would, if achieved, represent the company’s best performance since at least FY 2000, indicating that analysts currently assume the presence of very favorable operating conditions over the next six quarters. Based on the company’s share price at the time of writing of $31.59, it has a trailing P/E ratio of 18.1x. Its FY 2015 and FY 2016 consensus estimates yield forward P/E ratios of 16.8x and 15.7x, respectively. While off of their January highs, all of these ratios are still well above their lows since 2012 (see figure). The company’s shares appear to be fairly-valued, if not slightly overvalued, based on their historical valuation range. CMS PE Ratio (NYSE: TTM ) data by YCharts Conclusion CMS Energy has much to offer to those investors looking for safe, dividend-bearing investments: an impressive share price track record, several years of sustained dividend and EPS increases, and a large presence in a rebounding economy that is overseen by a favorable regulatory system. Those investors with a multi-year investment horizon could certainly do worse than to initiate a long investment in the company at its current share price. I recommend waiting, however, until the first interest rate increase occurs later this year, as I believe that this will cause the company’s share price to decline still further in light of its large debt load and planned capex in the coming years. I expect that patient investors will be able to initiate long positions at 15x the firm’s estimated FY 2016 earnings, or $30.15 based on current forecasts, which would compensate them for the risk borne by the company’s debt load. 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The SPDR S&P Global Dividend ETF: Do High Yield Dividend ETFs Reach Too Far?

A globally diversified, passive, total return fund which seeks very high dividend payouts. Several of its heaviest weighted companies pay dividends in excess of net income. Several heavily weighted assets have dividends potentially at risk. We all know the famous biblical anecdote of David interpreting the Pharaoh’s dream. There were to be seven years of plenty followed by seven years of famine. Pharaoh heeded the analysis and prepared the kingdom for the lean years. It’s fair to say that this might have been history’s very first documented investment advice. It required discipline to make the right choices at the right time and then stick to a plan. Comparatively speaking one might say that these are lean year for dividends but it certainly won’t remain this way forever. So, how should a retirement portfolio be positioned for both the lean and fat years? One way is to invest in a dividend focused ETF, but the investor must tread carefully here. The idea is not just to get a dividend return, but to also minimize risk. The important at-a-glance metrics to examine carefully are: trailing dividend yields, payout to net income ratio and the strength of cash flow. These three will give an indication of consistency and sustainability of the current dividend. Here’s one example: State Street Global Advisors’ SPDR S&P Global Dividend ETF ( WDIV ) . According to State Street , the fund’s objective is ” to seek to provide investment results that, before fees and expenses, correspond generally to the total return of the S&P ® Global Dividend Aristocrats Index.” The prospectus states that the fund’s strategy is to invest in a subset of the index, being at least 80% invested at all times. Some key rules are: investing in securities having paid increasing or stable dividends for at least ten years, a market cap of at least $1 billion, an average daily trade value of at least $5 million, a non-negative ‘Dividend to Net Income ratio’ and a maximum indicated dividend yield of 10%. Under these rules, the top 100 qualified stocks are selected with no more than 20 companies from any one country. The weightings of individual holdings are capped at 3% and individual country weightings capped at 25%. (source: WDIV ) The top five country weightings accounting for 65.72% of the fund are: United States, 21.59%; Canada, 15.71%; United Kingdom, 14.52%; France, 6.66% and Australia at 6.64%. EU member nations account for 35.08% of the fund. One must also consider that the fund includes companies based in emerging market countries such as South Africa, Thailand, Brazil and Malaysia, comprising 6.26% of the fund. The fund’s prospectus makes no mention of currency hedging, hence there’s a currency risk although the fund’s broad global diversification should mitigate those risks. 29.62% of the fund is held in cyclically defensive sectors: Utilities, 15.33%, Consumer Staples, 11.22% and Health Care, 3.07%. Those sectors most affected by economic cycles comprise 36.7% of fund: Financials, 25.45%, Consumer Discretionary, 7.74% and Materials, 2.98%. Lastly, 34.21% are held in semi-cyclicals (or cyclically sensitive), 11.65% in Industrials, 10.13% in Energy, 8.36 in Telecom Services and 4.07 in IT. (source: WDIV ) The following gives a snapshot of the top ten holdings with yields and dividend statistics. HollyFrontier Corp (NYSE: HFC ), the fund’s top holding at 2.61%, is a U.S. based petroleum refiner, processing 443,000 barrels per day producing gasoline, diesel, jet fuel, asphalt and lubricants. HFC operates 5 refineries through subsidiaries and also owns a 39% interest in Holly Energy Partners. Its dividend yield is 3.20%, and above the 1.68% industry average in the volatile oil industry. Over the past 5 years its average yield is 3.22%. Its trailing 12 month target payout ratio is high at 155.14% of net income; however, it manages to pay consistently, with a 5 year dividend growth rate of 61.15%. The share price to cash flow multiple is 10.65, well within the average S&P price to cash flow multiple of 14 times. Neopost ( OTCPK:NPACY ), at 1.67% of holdings, is a global provider of mailing solutions, digital communications and shipping services, based in Bagneux, France. The company services 90 countries with subsidiaries in 31 of those. Neopost targets small and midsized companies in Europe although 40% of its business is from North America. To put Neopost in perspective, its primary competitor in the industry is Pitney Bowes . The ADR carries a semiannual dividend of $0.1357, or 7.98% annually. Its dividend yield 9.62% is well above the industry average, 2.65%. Similarly, its 5 year average dividend yield of 7.20% is also well above the industry average at 2.66%. Neopost’s target payout ratio is just over 100% of net income, with a 5 year 1.10% dividend growth rate; the share price to cash flow multiple is 7.61. In other words, Neopost dividend target is 100% of income however manages to sustain and grow their dividend. U.S. based R.R. Donnelley & Sons Company (NASDAQ: RRD ), at 1.63% of holdings. What R. R. Donnelley does may best be described as ‘getting the message across’, through publishing, retail services, digital print, books, magazines, catalogs, inserts, statements and manuals for its clients. Donnelley’s dividend yield of 5.75% is well above the industry average 2.25% yield. Its 5 year 6.67% yield average also tops the industry’s 3.04% average. It needs to be noted that Donnelley’s expected payout ratio is 123.3, indicating that, technically, it’s distributing more than it earns. Over the past 5 years dividend growth is nil and it has a price to cash flow multiple of 4.71, possibly indicating declining revenues and a low share price Coca-Cola Amatil Limited ( OTCPK:CCLAF ), 1.45% of holdings, based in Sydney, Australia. Amatil is Coca-Cola’s bottler and distributor serving the South Pacific region. Amatil’s dividend yield is 3.28%, has a 5 year average yield of 2.28 but, importantly, has a sustainable payout ratio of 77.44% of net income, a 5 year dividend growth rate of 8.72% and priced at a somewhat high 22.42 times cash flow. This is a solid dividend paying holding. Centrica ( OTCPK:CPYYY ), 1.43% of holdings, whose business is in ‘ every stage in the energy chain ‘, from sourcing on the industrial side to servicing on the consumer side. Centrica employs 30,000 in the U.K., Ireland, Europe, North America and Trinidad. Centrica’s dividend yield is 4.91% and has a 5 year average yield 4.84%. Its 5 year dividend growth rate is 1.07%. Due to falling energy prices Centrica cut its dividend to nearly zero. Its expected payout ratio is 0.00%. Shares are priced at 5.99 times cash flow. (click to enlarge) (source: combined) Wm Morrison Supermarkets ( OTCPK:MRWSF ), 1.43% of holdings. As the name implies it’s a retail supermarket chain and offers home delivery. It’s the 4th largest supermarket chain in the U.K. Wm Morrison has fallen on tough times and this is one of the weaker holdings. Shares have fallen 15% in the past 52 weeks. However, Q1 sales did improve and market share remained steady at 10.9%. It will be removed from the FTSE 100 and placed in the FTSE 250. Although the historical statistics indicate that the company paid a 0.5004 semiannual dividend, has a 5 year average dividend yield of 4.48% and a 5 year dividend growth rate of 10.73%, it’s necessary to point out that the company has a negative P/E at -21.65. In March of 2015 the dividend was cut 63%. Hence, a second company in the top ten with an expected 0.00% payout ratio. Currently, it is selling at approximately 4.02 times cash flow Universal Corporation (NYSE: UVV ), 1.42% of holdings, is a global supplier of cured leaf tobacco for consumer tobacco product manufactures. Their services include packing, storing and financing. Universal conducts business in 30 countries and employs 24,000 permanent and seasonal workers. The Company pays a $0.52 share dividend or 3.67% annualized, a 5 year dividend average of 3.97%, a 5 year dividend growth rate of 2.06% and a sustainable expected payout ratio of 47.36%. Shares are priced at 8.95 times cash flow, well inside the S&P average. Not only is Universal a solid dividend paying company, but its target payout ratio has plenty of room to grow. UBM PLC ( OTCQX:UBMPY ), 1.40% of holdings, is a London based marketing, communications and media consultants, specializing in digital services as well as ‘person-to-person’ events, such as trade shows, exhibitions, conferences and live events. Its ADR carries a semiannual $0.16 per share dividend, 3.74% annually, well above the industry average of 1.48%. Its 5 year average yield is 3.97% with a 5 year dividend growth rate of 2.06%. The payout ratio is a very sustainable 47.36%. It recently announced a dividend of $0.24. The company has also been recently upgraded by leading analyst, for example Societe Generale ( OTCPK:SCGLY ) and BNP Paribas ( OTCQX:BNPQY ), to ‘buy’. UBM’s expected payout ratio is 58.26% of earnings and is priced at 12.40 time cash flow. The sustainable payout ratio, analyst upgrades and cash flow multiple within the S&P’s average makes it a solid holding. Williams Companies (NYSE: WMB ), Inc., 1.38% of holdings, is a U.S. based and recognized by Forbes as the most admired energy company for 2015. It is a supplier of liquid natural gas, olefins used in plastics production, owns interstate natural gas pipelines and processes oil-sands. Williams Companies provides services through subsidiaries such as Transco , Gulfstream and Northwest Pipeline . The company pays a quarterly dividend of $0.59 per share, annualized to about 4.86%, a 5 year average yield of 3.24%, a very notable dividend growth rate of 26%, a sustainable payout ratio of 76.96% of net income and trades at 10.36 times cash flow. Williams is a well-founded dividend paying asset. New York Community Bancorp Inc. (NYSE: NYCB ) at 1.36% of holdings, is a New York State Charted Bank Holding Company of New York Community Bank and New York Commercial Bank . These subsidiaries service both consumers and business banking needs in New York City, New Jersey, Florida, Ohio and Arizona. The holding company pays a quarterly dividend of $0.25, about a 5.85% annual yield, a strong 5 year average yield of 6.48%, but having no dividend growth over those 5 years compared to the industry average of 18.04% dividend growth. Its expected payout ratio is high but sustainable at 90.92% and trades at 15.84 times cash flow, slightly above the S&P average. With an improving U.S. economy, particularly in the Florida housing market, it may well be worth the risk. (click to enlarge) The fund is diversified with 102 holdings and a dividend yield of 3.95%; 3.84% less fees and expenses. The recent fixed income selloff may have contributed to the -2.40% one month return. Year to date the fund returned 3.30% and since inception, 9.21%. The average top ten cash flow multiple is 10.3. This may be compared with the benchmark MSCI S&P ® Global Dividend Aristocrats Index yield of 4.61% and a price to cash flow multiple of 8.17. The fund’s FY1 P/E ratio is 15.30, identical with the index as well as the 5 years earnings growth of 5.44%. The market capitalization of the fund is $63.51 million with 950,000 shares outstanding. Currently the market premium is 0.73% over NAV and total management fees are 0.40% annually. (source: WDIV ) There are similar funds for instance the Guggenheim S&P Global Dividend Opportunities Index ETF (NYSEARCA: LVL ), weighted towards Energy, Financials and Utilities. However, just looking at a few of the most heavily weighted companies revealed payout ratios in the hundreds and several others currently having 0.00% payout targets. Another high yield dividend focused ETF, the First Trust Dow Jones Global Select Dividend Index ETF (NYSEARCA: FGD ), also had similar metrics. Since WDIV is a rule based passively managed fund, one should expect variations as companies are dropped or added to the fund as the rules guided metrics change. Generally speaking, though, there are several heavily weighed components which do pay a high dividend, but those dividends are potentially at risk. Granted, the fund will adjust for that, but the question becomes whether or not the passively managed fund will make those changes in a timely manner. The investor must keep the goal in mind and what the alternatives are. The most secure assets like U.S. Treasuries, AAA rated foreign sovereign or even the largest most solidly founded corporations are very highly priced, hence have lower yields. Paying up for such small returns is not a good strategy, especially when a correction is almost certain to happen when the major central banks unwind their QE programs. Similarly, just reaching for the highest yields without regard to risk will lead to similar ‘negative’ results. High yielding ETFs might be okay if an investor has available ‘risk capital’, but generally, these funds seem to be reaching a little too far out on the limb to stake a major portion of one’s capital in the interim. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: CFDs, spread betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.