Checking In: Another Income Play
Give ETF issuers this much credit: In 2011, they've really seized on investors' desire to capture more income through exchange-traded products.
It may only be slight hyperbole, but it seems like every week, another dividend ETF comes to market or an ETF issuer files plans for a new income-oriented fund.
That's good news for income investors that are suffering in an environment of historically low interest rates and yields on Treasuries that hardly make them worth the trouble. Of course, the big three of the ETF universe: iShares, State Street Global Advisors and Vanguard, have plenty of options for income investors - but sometimes it pays to look off the beaten path. That's exactly what we're going to do with this week's “Checking In.”
Enter the Russell Equity Income ETF (NYSE: EQIN), part of the suite of ten ETFs that focus on various investment disciplines introduced by Russell Investments earlier this year. The Russell Equity Income ETF made its debut in mid-May and considering a crowded field and tricky market environment, the ETF has done an admirable job of attracting assets under management with over $9.3 million.
Home to almost 260 stocks and an expense ratio of 0.37%, at first blush, EQIN looks like it will be the typical blue-chip/dividend/value play. Something that could rival the Vanguard Dividend Apperciation ETF (NYSE: VIG) or the Vanguard Value Trust (NYSE: VTV).
And yes, EQIN does hold familiar dividend names such as Abbott Labs (NYSE: ABT) and 3M (NYSE: MMM) along with a bunch of other Dow stocks. (Nine of the top 10 holdings are Dow stocks) That said, EQIN features a few more mid-cap and growth names than the typical dividend ETF and we view that as a positive.
But if you need to feel safe, the mission of EQIN is clear.
The ETF includes stocks that are expected to pay a dividend based on consensus one year dividend forecasts or have paid a dividend in the past year. EQIN excludes stocks with high variability in earnings as measured by high earnings per share volatility over the past five years, low profitability as demonstrated by a low return on equity over the past five years, or forecasted negative earnings over the next year, according to the ETF's fact sheet.
The 18% allocation to financials isn't what we like to see, but four other sectors – durables, health care, energy and utilities – also get double-digit weights. Overall, EQIN is probably one of the better new ETFs of 2011 that no one is talking about.
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