Market Overview

The Indomitable Rise of Dividend ETFs

The Indomitable Rise of Dividend ETFs

It is simple economics. The Federal Reserve's low interest rate policy and plans to keep rates low through 2015 have chased yield-hungry investors out of cash investments and into higher-yielding products. ETF sponsors have met investors' yield demands with aplomb, rolling out new dividend-based products on a regular basis this year.

The impact of investors' dividend desires is obvious. Dividend ETFs, new and old, have seen assets under management totals surge. Thirty-two dividend ETFs tracked by Dorsey Wright & Associates collectively grew assets by 40 percent through the end of the third quarter compared to asset growth of 23 percent for all ETFs, according to data provided by the firm.

There are more than 32 dividend ETFs on the market today and the Dorsey Wright data does not include funds such as the First Trust Nasdaq Technology Dividend Index Fund (NYSE: TDIV), which debuted just two months ago and already has $30.4 million in AUM.

It is also worth noting that inflows to dividend ETFs have not been reserved for U.S.-focused funds. International payout funds tracking developed and emerging markets have seen AUM totals surge as well.

Staying Home With Europe's sovereign debt crisis and slowing emerging markets growth on the minds of investors, many have opted for U.S. equities over international equivalents. That has helped the S&P 500 enjoy a double-digit year-to-date gain. It also means investors have pumped plenty of cash into ETFs tracking U.S. dividend payers.

And those inflows have not been going just to the most familiar products such as the Vanguard Dividend Appreciation ETF (NYSE: VIG) and the SPDR S&P Dividend ETF (NYSE: SDY), though those funds have grabbed their share of inflows. At the end of 2011, VIG had $8.9 billion in AUM, but that number had swelled to almost $11.9 billion at the end of the third quarter. SDY has seen its AUM haul jump 14.6 percent since the end of 2011.

On a percentage basis among U.S. equity dividend ETFs, no fund even comes close to the Schwab U.S. Dividend Equity ETF (NYSE: SCHD), which has seen its AUM total nearly quadruple since the end of 2011. Give the ELEMENTS DJ High Yield Select 10 ETN (NYSE: DOD) some credit for trying to compete with SCHD in terms of asset growth. The ETN has seen its assets more than triple this year, according to Dorsey Wright data.

Other impressive 2012 asset growers include the iShares High Dividend Equity Fund (NYSE: HDV), one of 2011's most successful ETF launches. HDV had less than $920 million in AUM when the ball last dropped in Times Square. As of the close of markets on Monday, the ETF had almost $2.3 billion in assets.

The Guggenheim Multi-Asset Income ETF (NYSE: CVY), the First Trust Morningstar Dividend Leaders Index Fund (NYSE: FDL) and the First Trust Value Line Dividend Index Fund (NYSE: FVD) also have seen stellar AUM growth.

Going Global As was noted earlier, investors have plenty of choices when it comes to international dividend funds. The Global X Super Dividend ETF (NYSE: SDIV) is not a pure play global ETF as the U.S. accounts for almost 36 percent of SDIV's weight, but the real sources of allure here are a 30-day SEC yield of 6.7 percent and a monthly dividend.

Dorsey Wright data indicate SDIV had just $29 million in AUM at the end of 2011. That number is a now $154.5 million, meaning SDIV's assets have surged almost 55 percent in just two months.

In terms of issuers, WisdomTree (NASDAQ: WETF) has seen an impressive, if under-appreciated burst of inflows into its global dividend products this year. The WisdomTree Emerging Markets Equity Income Fund's (NYSE: DEM) AUM total has more than doubled this year, representing another feather in the cap of an ETF that often outperforms rivals such as the Vanguard MSCI Emerging Markets ETF (NYSE: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSE: EEM).

Four other WisdomTree global dividend ETFs have seen asset growth ranging from 20 percent to 31 percent this year, according to Dorsey Wright. Those funds are the WisdomTree Australia Dividend (NYSE: AUSE), the WisdomTree DEFA Equity Income Fund (NYSE: DTH), the WisdomTree Global Equity Income Fund (NYSE: DEW) and the WisdomTree International Div ex-Financials ETF (NYSE: DOO).

Do not forget small caps. The WisdomTree Emerging Markets SmallCap Dividend Fund (NYSE: DGS) had $800 million in AUM as of mid-February. That number is now approaching $1.1 billion.

Despite Europe's woes, the First Trust STOXX European Select Dividend Index Fund (NYSE: FDD) has seen its AUM total surge almost 64 percent this year. FDD has a 30-day SEC yield of 6.53 percent. The Europe-heavy Guggenheim International Multi-Asset Income ETF (NYSE: HGI) is fast approaching $117 million in AUM after finishing 2011 with just $86 million.

Emerging markets dividend ETFs are not taking a backseat to developed market rivals. The iShares Emerging Markets Dividend Index Fund (NYSE: DVYE) debuted in late February and already has $44.7 million in AUM. That means DVYE has a long way to go to catch the SPDR S&P Emerging Markets Dividend ETF (NYSE: EDIV). With $315.3 million in assets, EDIV's AUM total has almost doubled this year.

For more on dividend ETFs, click here.


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