Dividend-Rich ETFs Haul In Huge Assets
Two dividend-focused equity funds hauled in massive assets this week, the latest sign investors are looking to payout-rich stocks at a time when various pockets of the bond market are looking overvalued at the end of a 30-year rally in fixed income and after five years of choppy post-crash markets that have favored bonds over stocks.
The Vanguard High Dividend Yield ETF (VYM) and the iShares High Dividend Equity Fund (HDV) sucked in major money in Wednesday’s session. VYM’s creations of more than $1 billion fueled a 20 percent rise in assets to $6.26 billion, while HDV tacked on $281 million in assets, a 10 percent jump that made it a $2.85 billion fund, according to data compiled by IndexUniverse.
“The chase for yield is on,” said Rick Vollaro, chief investment strategist at Pinnacle Advisory Group, a Columbia, Md.-based registered investment advisor. “They want something with yield, but they don’t want bonds.”
He quickly added that using equities as a yield-replacement strategy may be attractive but clearly has its problems, given the relative volatility of stocks.
Still, there’s plenty of anecdotal evidence that many in the world of investing and money management consider equities to be appropriate up to a point for use as income generators at a time when Treasury yields are looking terribly meager and, worse yet, the bond market may soon correct downward, raising the possibility of capital losses for some investors.
Wealthfront, the online, algorithmically based advisory firm that hired indexing legend Burton Malkiel even added dividend-rich funds to its asset allocation scheme as part of a broader initiative to expand income-rich choices. Malkiel, the author of the seminal work on indexing “A Random Walk Down Wall Street,” has himself been plain that high-dividend stocks make some sense for seniors just now .
In broad perspective, the massive flows into VYM and HDV are just the latest and perhaps most dramatic signs of an asset shift over the past year of more than $60 billion into various dividend-focused strategies. The vast majority of those flows have been into U.S.-focused stocks, and a healthy chunk is in emerging markets equities as well, as the tables below of data compiled by IndexUniverse show.
Top 10 Creations (All ETFs)
Ticker | Name | Net Flows ($,mm) | AUM ($, mm) | AUM % Change |
VYM | Vanguard High Dividend Yield | 1,068.59 | 6,269.80 | 20.55% |
HDV | iShares High Dividend Equity | 280.79 | 2,853.11 | 10.92% |
DXJ | WisdomTree Japan Hedged Equity | 144.08 | 5,113.89 | 2.90% |
XLF | Financial Select SPDR | 143.97 | 11,377.22 | 1.28% |
CSJ | iShares Barclays 1-3 Year Credit Bond | 126.47 | 10,085.82 | 1.27% |
MDY | SPDR S'P MidCap 400 | 103.46 | 11,555.92 | 0.90% |
IEMG | iShares Core MSCI Emerging Markets | 102.40 | 783.36 | 15.04% |
TLT | iShares Barclays 20+ Year Treasury Bond | 80.93 | 3,237.08 | 2.56% |
EPP | iShares MSCI Pacific ex-Japan | 74.91 | 4,614.46 | 1.65% |
XLP | Consumer Staples Select SPDR | 69.68 | 6,362.76 | 1.11% |
1 Year | |||
Index Universe's Segment Title | Net Flows ($, mm) | AUM ($, mm) | % of AUM |
Equity:U.S. - High Dividend Yield | 49,960.45 | 6,678.74 | 13.37% |
Equity:Emerging Markets - High Dividend Yield | 6,247.57 | 2,550.76 | 40.83% |
Equity:Developed Markets Ex-U.S. - High Dividend Yield | 2,392.69 | 855.63 | 35.76% |
Equity:Global Ex-U.S. - High Dividend Yield | 2,095.47 | 540.02 | 25.77% |
Equity:Global - High Dividend Yield | 872.23 | 475.32 | 54.50% |
Equity:Australia - High Dividend Yield | 75.22 | 4.82 | 6.41% |
Equity:Asia-Pacific - High Dividend Yield | 34.48 | 21.32 | 61.83% |
Equity:Developed Europe - High Dividend Yield | 33.46 | 22.97 | 68.65% |
Signs Of A Spent Bond Market
Dividend-rich equity funds have clearly been part of the order flow in the past several months, according to Paul Weisbruch, an ETF trader with King of Prussia, Pa.-based Street One Financial, who considers the replacement of bonds with high-yielding equities as plausible, if not totally sensible.
“These funds, VYM and HDV, look a lot like the low-volatility equity funds,” Weisbruch noted, saying the big flows in the past two years into ETFs such as the PowerShares S'P 500 Low Volatility Portfolio (SPLV) and the iShares MSCI USA Minimum Volatility Index Fund (USMV) are part and parcel of the same concern investors have about owning too many bonds at a time when inflation may be close to rearing its head.
SPLV and USMV, which have been around for nearly two years, now have assets of $4 billion and $1.78 billion, respectively, according to data compiled by IndexUniverse.
Other signs Weisbruch sees that suggest the bond market is looking overbought is the put options some investors are buying on certain popular bond ETFs, such as the iShares Barclays 20+ Year Treasury Bond Fund (TLT) and particularly the iShares iBoxx $ High Yield Corporate Bond Fund (HYG).
HYG also reared its head in our latest ETF Short Report . The number of HYG shares being shorted rose by 52 percent in February, a clear sign at least some investors think the junk bond market is likely to correct downward.
3/13/2013 | |||
Index Universe's Segment Title | Net Flows ($, mm) | AUM ($, mm) | % of AUM |
Equity:U.S. - High Dividend Yield | 1,404.00 | 49,961.29 | 2.81% |
Equity:Emerging Markets - High Dividend Yield | 37.13 | 6,247.30 | 0.59% |
Equity:Global - High Dividend Yield | 20.69 | 872.25 | 2.37% |
Equity:Global Ex-U.S. - High Dividend Yield | 6.54 | 2,095.42 | 0.31% |
Leveraged Equity:U.S. - High Dividend Yield | 0.00 | 27.07 | 0.00% |
Equity:Asia-Pacific - High Dividend Yield | 0.00 | 34.48 | 0.00% |
Equity:Australia - High Dividend Yield | 0.00 | 75.22 | 0.00% |
Equity:Developed Markets Ex-U.S. - High Dividend Yield | 0.00 | 2,392.68 | 0.00% |
Equity:Developed Europe - High Dividend Yield | 0.00 | 33.43 | 0.00% |
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