3 Cheap Value ETFs with Strong Dividend - ETF News And Commentary
The global stock market has been jerky since the start of 2015 as a mountain of woes and increased volatility are coming in the way of investments. Though the U.S. economy firmed up last year, 2015 has seen moderation in growth thanks to a stronger dollar. To add to this, the never-ending fickleness in crude oil prices, global growth concerns and speculation over the timeline of the first U.S. rate hike after over six years weighed on investors’ sentiments, flaring up volatility.
Though the second-quarter U.S. economic data hint at a rebound from the winter gloom, the revival is yet to be full-fledged. A month-long fear of ‘Grexit,’ or the ultimate outcome if Greece fails to reach a debt deal soon and an acute sell-off in Chinese securities made the global markets go into a tailspin.
The U.S. market was also not immune to the ripples of negative currents, which finally forced the S&P 500 to see the ‘worst first half’ in five years and add just over 1% in the year-to-date frame. America is nonetheless sitting pretty among the global pack. This leaves the U.S. as the lone star in the developed nations’ pack armed by a healing job market, improving housing data and better consumer savings (read: Invest in America with These 4 ETFs).
Last month, the World Bank reduced the global growth forecast from 3% to 2.8% for this year, on lower commodity prices and contagion of the looming Fed rate hike which in turn will likely hurt the developing markets. The bank also downgraded its growth outlook for the world’s largest economy to 2.7% from 3.2%. The Fed also lowered the expectation for 2015 real GDP to 1.8─2.0% from 2.3─2.7% guided in March.
With nothing concrete and positive in sight, the choppiness will likely continue in the coming quarter. This leads us to presume that a risk-off sentiment will hang over the marketplace and the focus will stay on domestic stocks as international plays are far from being safe.
After all, back home, the Fed has promised a slower rate hike trajectory when the step is taken. Also, the Fed slashed its projection for the benchmark interest rate for 2016 and 2017, though the guidance for the ongoing year was kept unchanged. This indirectly points to the availability of a few more months of cheap dollar.
Investors should note that yield on the benchmark 10-Year U.S. Treasury note slipped to 2.27% on July 7, 2015 from this year’s high of 2.50% (recorded on June 10) on greater demand for safe haven assets. In this baffling backdrop, U.S. value ETFs with strong dividend yield and low expense ratio make a good investment decision for edgy investors, who look for value, and higher current income on relatively low expenses (read: A Guide to 10 Cheapest ETFs).
Below, we have highlighted three such ETFs that were in the positive territory in the last five trading sessions shrugging off the broad-based gloom induced by Greece, and could be in focus if the current trend continues.
iShares High Dividend ETF (HDV)
This product provides exposure to 73 dividend stocks by tracking the Morningstar Dividend Yield Focus Index. The nine Dogs of the Dow account for more than half of the portfolio, suggesting that these dominate the returns of the fund. From a sector look, the fund is well spread out with double-digit exposure to Consumer Staples, Energy, Telecom, Health Care, Industrials and Utilities (read: 5 Investor-Friendly Dow Dog ETFs for 2015).
HDV is among the largest and most popular ETF in the large cap space with AUM of about $4.4 billion and average trading volume of over 300,000 shares. It charges 12 bps in fees per year and gained nearly 1.6% in the last five trading sessions (as of July 7, 2015). This Zacks Rank #3 (Hold) ETF yields 3.69% annually (as of July 7, 2015).
Vanguard High Dividend Yield ETF (VYM)
This large cap centric fund provides exposure to the high yielding U.S. dividend stocks by tracking the FTSE High Dividend Yield Index. The ETF is one of the largest and most popular choices in the dividend ETF space with AUM of over $10.9 billion and average daily volume of around 500,000 shares. Expense ratio came in at 10 bps (read: 3 Excellent Dividend ETFs for Growth and Income).
Holding 435 securities, the product does not put more than 4% share in each stock. In terms of sectors, the fund is widely spread out with technology, consumer goods, financials, industrials, health care and oil & gas taking double-digit exposure in the basket.
The ETF yields 3.03% (as of July 8, 2015) and has a Zacks ETF Rank #2 with a Medium risk outlook. VYM was up 1.1% in the last one week (as of the same date).
Schwab U.S. Large-Cap Value ETF (SCHV)
This fund offers exposure to the value segment of the large cap equity market by tracking the Dow Jones U.S. Large-Cap Value Total Stock Market Index. In total, it holds 352 stocks with a well-diversified portfolio as none of the securities accounts for more than 3.6% of total assets. However, the product is slightly tilted toward Financials at 23.20% while Health Care (13.02%), Information Technology (12.40%) and Consumer Staples (11.70%) round off the next three spots.
SCHV has amassed assets worth $1.4 billion so far and trades in volume of around 150,000 shares a day on average. With a low expense ratio of 0.07%, the ETF has been able to deliver about 1% returns in the trailing five-day period. The fund yields 2.50% (as of July 8, 2015) and has a Zacks ETF Rank #3.
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ISHRS-CORE HD (HDV): ETF Research Reports
VANGD-HI DV YLD (VYM): ETF Research Reports
SCHWAB-US LCV (SCHV): ETF Research Reports
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