Another Look At High-Yield ETFs

10/19/2009


Last October we reviewed 17 high-yielding exchange-traded funds, profiling two standouts — Vanguard Dividend Appreciation ($45; VIG) and the Dow Diamonds Trust ($99; DIA). At the time, both funds shared three characteristics:

High average Quadrix® Overall scores for fund holdings.

Large portions of assets in stocks with Overall scores above 80.

Limited exposures to stocks with Overall scores below 20.

Over the last 12 months, both featured funds have delivered strong relative performance. Vanguard Dividend Appreciation has gained 11.5% versus an average return of 4.1% for the 16 ETFs still available to investors. Last October, the fund tied for the highest weighted-average Overall score (72).

DIVIDEND ETFs
— % of Assets —
ETF (Price; Ticker)
Est.
Yield
(%)
Average
Quadrix
Overall *
Overall
Above
80
Overall
Below
80
Exp.
Ratio
(%)
12-Mo.
Return
(%)
Claymore/Zacks Div. Rotation
($18; IRO)
3.4
71
34
0
0.60
53.5
Dow Diamonds Trust
($99; DIA)
2.8
71
28
1
0.14
7.5
First Trust Morningstar
Div. Ldr. ($13; FDL)
4.7
67
14
0
0.45
(2.0)
First Trust Value Line
Dividend ($13; FVD)
2.8
66
24
1
0.70
8.7
iShares Dow Jones
Select Div. ($42; DVY)
3.8
64
20
3
0.40
(4.3)
PowerShares Div. Achievers
($12; PFM)
2.0
71
32
1
0.60
0.3
PowerShares High Yield Div.
($8; PEY)
3.1
49
11
10
0.60
(11.6)
SPDR S&P 500 ($107; SPY)
1.9
68
31
3
0.09
8.8
SPDR S&P Dividend
($45; SDY)
3.8
62
18
4
0.35
8.3
Vanguard Div. Appreciation
($45; VIG)
2.0
75
41
1
0.24
11.5
Vanguard High Div. Yield
($37; VYM)
3.1
61
15
4
0.20
6.2
WisdomTree Div. Ex-Fin'l
($38; DTN)
3.8
62
17
4
0.38
1.4
WisdomTree Equity Income
($34; DHS)
2.8
57
15
5
0.38
0.8
WisdomTree LargeCap
Dividend ($40; DLN)
2.5
65
22
3
0.28
2.9
WisdomTree MidCap
Dividend ($41; DON)
2.6
54
12
5
0.38
16.1
WisdomTree SmallCap Div.
($38; DES)
3.3
50
9
10
0.38
4.1
WisdomTree Total Dividend
($40; DTD)
2.5
63
21
3
0.28
6.7
* Quadrix scores are percentile ranks, with 100 the best.

The Dow Diamonds Trust has gained 7.5% over the past 12 months. A year ago, the fund also had a weighted-average Overall score of 72. At 42%, the Dow Diamonds Trust had the most assets in stocks with Overall scores above 80.

PowerShares High Yield Dividend Achievers ($8; PEY), which had the lowest weighted-average Overall score a year ago, has been the worst performer, tumbling 11.6%. Only 2% of assets were in stocks that scored above 80. As the table at right shows, the fund looks somewhat better today but remains unappealing.

How do the funds stack up now? On average, the 17 ETFs listed on the right earn a weighted-average Overall score of 63, up from 54 a year ago. Roughly 21% of ETF assets now earn Overall scores above 80, up from 16%. Sixteen of the ETFs from last year’s screen are listed, with one new fund.

Vanguard Dividend Appreciation remains a top pick. The fund, yielding 2.0%, mimics the Mergent Dividend Achievers Select Index, which focuses on companies with at least 10 straight years of dividend increases. The fund earns a weighted-average Overall score of 75 — tops among its peers.

The Dow Diamonds Trust remains comparatively attractive. The ETF earns a weighted-average Overall score of 71 and yields about 2.8%. Roughly 28% of assets are in stocks with Overall scores above 80.

The Claymore/Zacks Dividend Rotation ($18; IRO) ETF, yielding 3.4%, is new to the list and worth watching. The fund scores well in Quadrix and has performed admirably over the last year. But its trading volume is minuscule, often less than 1,000 shares a day. That lack of liquidity adds risk to the fund.

FORECASTS FUND RECOMMENDATIONS
Through Oct. 13, our recommended Growth Portfolio has gained 28.3% in 2009, while the Conservative Portfolio has increased 21.9%.
— Year-to-Date —
—— % of Portfolio ——
Fund (Price; Ticker)
Return
(%)
Rank
Conser-
vative
(%)
Growth
(%)
Baron Asset ($44; BARAX)
26.4
D
6
7
Dreyfus Small Cap Stock Index
($16; DISSX)
21.2
D
0
0
Fidelity Export & Multinational
($19; FEXPX)
31.0
B
6
8
Fidelity Leveraged Co. Stock
($22; FLVCX)
55.2
A
0
0
Heartland Select Value
($24; HRSVX)
32.6
B
5
9
Heartland Value Plus ($23; HRVIX)
22.5
D
7
8
Northern Small Cap Value
($12; NOSGX)
15.5
E
0
0
T. Rowe Price Int’l Discovery
($37; PRIDX)
53.6
A
5
7
T. Rowe Price New Horizons
($25; PRNHX)
38.1
B
6
8
Vanguard 500 Index ($99; VFINX)
21.2
C
7
7
Vanguard Dividend Growth
($13; VDIGX)
14.8
E
8
10
Vanguard Emerging Mkts. Stock
Indx. ($25; VEIEX)
69.1
B
0
5
Vanguard GNMA ($11; VFIIX)
5.3
B
6
0
Vanguard Inter.-Term Tax Exempt
($14; VWITX)
9.6
C
0
0
Vanguard International Value
($31; VTRIX)
33.4
B
8
9
Vanguard Short-Term Invest. Grade
($11; VFSTX)
12.9
A
0
0
Vanguard Total Bond Mkt. Index
($10; VBMFX)
6.1
E
20
0
Vanguard Wellesley Income
($20; VWINX)
13.1
E
0
7
Vanguard Wellington ($28; VWELX)
18.3
D
9
10
Wells Fargo Advantage High Income
($7; STHYX)
27.7
E
7
5
* Rankings through Oct. 13 from Morningstar, comparing performance among funds with same objectives. A = top 20%; B = next 20%; C= middle 20%; D = next 20%; E = bottom 20%. c Closed to new investors.

Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com