Utilities Resurgence Helps Some Dividend ETFs; Inflows A Different Story

To say the Utilities Select Sector SPDR XLU has been on fire since the start of the third quarter is an understatement. Supposedly home to some of the stodgiest stocks on the market, XLU entered Tuesday with a third-quarter gain of almost 10 percent. None of the other sector SPDR exchange traded funds are even close.

That's right. What should be the slowest-moving of the nine sector SPDRs has needed less than two months to surge 10 percent. Investors are, literally, buying into the utilities move. For the week ended August 17, only one ETF added more new money than XLU and since the start of the current quarter, only nine ETFs have added more than $1.05 billion hauled in by XLU.

However, dividend ETFs heavy on utilities are still looking to join the inflows club because investors have been pulling money from these funds despite some solid third-quarter performances.

This is a scenario Benzinga highlighted with the iShares Select Dividend ETF DVY at the start of this month. DVY, one of the largest U.S. dividend ETFs, is known not only for its heft but it hefty utilities weight as well. 

The $13.8 billion DVY allocates 33.3 percent of its weight utilities stocks, nearly triple the allocation given to its second-largest sector weight, financial services. DVY's massive utilities weight gives the ETF an inviting trailing 12-month dividend yield of 3.21 percent and a beta of just 0.62. Those traits have not been enough to lure investors back to the fund this quarter as the fund has lost $480 million. Investors departing DVY this quarter are missing out because the ETF has climbed 2.6 percent.

The iShares Core High Dividend ETF HDV is suffering through a similar scenario. HDV's utilities weight of 11.2 percent obviously is not as large as DVY's, but HDV does have a trailing 12-month yield of 3.66 percent.

Resurgent consumer staples and utilities stocks, combined a third of the ETF's weight, have helped HDV notch a 1.3 percent third quarter. That is impressive when considering the ETF's 18.1 percent energy sector allocation. Still, investors have yanked $153 million from the fund.

A dividend ETF that is really benefiting, at least terms of total returns, from a large utilities weight is the PowerShares S&P 500 High Dividend Portfolio SPHD. Think of SPHD as the high dividend equivalent of the popular PowerShares S&P 500 Low Volatility Portfolio SPLV. Whereas SPLV holds the 100 S&P 500 members with the lowest trailing 12-month volatility, SPHD whittles that number down to 50 (51 right now) by combining low volatility and high yields.

With that combination, it is not surprising that SPHD has a 23.7 percent weight to utilities, its largest sector weight. That gives the ETF a trailing 12-month yield of 3.36 percent and has helped SPHD climb 5.1 percent this quarter.

Unfortunately for them, investors have responded by pulling $9.9 million from SPHD, but it should be noted SPHD has added $266.1 million in new assets this year, a total exceeded by just four other PowerShares ETFs.

Disclosure: The author owns shares of SPHD.