Investors Lavish Praise And Dollars Upon Dividend ETFs

October 31, 2016 11:01 am
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Even with all the talk about rising interest rates in the United States, exchange-traded funds focusing on dividends are enjoying a banner 2016 when it comes to adding new assets — that, after dividend strategies struggled in 2015.

Dividend investing is usually most effective with long-term holding periods, but knowing that is only half the battle. With so many dividend exchange-traded funds on the market, selectivity is key even for investors looking to buy and hold.

“Dividend investing is the hot ETF strategy of the year so far. The asset class has just experienced its largest quarterly inflow haul on record in Q3, when investors ploughed over $9 billion into the 268 globally listed funds tracked by the Markit ETP analytics database. This bumper result adds to the strong tally gathered by dividend ETFs in the opening half of the year; taking the net fund flows to $21.6 billion, nearly $3 billion more than the previous yearly record set back in 2013,” said Markit in a recent note.

For example, the Vanguard Dividend Appreciation ETF (NYSE: VIG), the largest U.S. dividend ETF, has hauled in $1.44 billion in new assets this year. VIG's underlying index requires member firms to have dividend increase streaks of at least 10 years, meaning newer dividend growth stocks, such as Apple Inc. (NASDAQ: AAPL), are not found in VIG.

Another Favorite

The WisdomTree High Dividend Fund (NYSE: DHS) has been another popular destination among dividend ETFs.

DHS's underlying index, the WisdomTree High Dividend Index (WTHYE) “is dividend weighted annually to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year, based on the most recently declared dividend per share,” according to WisdomTree.

DHS is a defensive ETF that marries two favored income themes: low volatility and dividend yield. The ETF's underlying index yields just over 4 percent with annualized volatility of under 18 percent, according to issuer data.

DHS has seen $275.1 million in year-to-date inflows, confirming investors' thirst for higher-yielding equities.

“The Vanguard Dividend Appreciation ETF is still the most popular dividend ETF, but its place at the top of the rankings is threatened as investors pick products that invest in stocks that offer a high yield over those that that have a track record of growing payments. This strong appetite for yield has seen the Vanguard High Dividend Yield ETF gather $3.1 billion of inflows. The high dividend yield offerings from Powershares and iShares have also proved popular with both finds outpacing their larger peer’s $1.39 billion year to date inflow performance,” added Markit.

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