U.S. markets closed
  • S&P Futures

    +4.00 (+0.09%)
  • Dow Futures

    -4.00 (-0.01%)
  • Nasdaq Futures

    +12.75 (+0.09%)
  • Russell 2000 Futures

    -0.30 (-0.01%)
  • Crude Oil

    +0.34 (+0.48%)
  • Gold

    -4.40 (-0.24%)
  • Silver

    -0.31 (-1.10%)

    +0.0001 (+0.01%)
  • 10-Yr Bond

    +0.0390 (+2.67%)
  • Vix

    +0.74 (+4.73%)

    -0.0009 (-0.06%)

    +0.0700 (+0.06%)

    +895.38 (+2.29%)
  • CMC Crypto 200

    +31.98 (+3.30%)
  • FTSE 100

    +12.62 (+0.18%)
  • Nikkei 225

    +234.62 (+0.80%)

A Dividend ETF That Likes Low Interest Rates

With practically every market pundit and his sister saying that the Federal Reserve is bound to raise interest rates sometime next year, investors have been, predictably, evaluating portfolio additions for a rising rates environment.

The value of preparation should not be underestimated, but pinpointing exactly when the Fed will hike rates has become a fool’s endeavor and if Janet Yellen and friends are to be taken at their respective words, then rates could remain low for significant amount of time going forward.

Along those, lines investors may want to consider exchange traded funds that have been benefiting from low interest. As has been previously noted, there are some well-known dividend ETFs that have been loving low U.S. interest rates, due in large part to the fact that several of these ETFs feature robust allocations to the rate-sensitive utilities sector. [Other ETFs Benefiting From Soaring Utilities]

That is the case with the $1.1 billion WisdomTree Dividend ex-Financials Fund (NYSEArca: DTN ) , which features a 17% utilities weight, making that the ETF’s largest sector allocation by about 330 basis points over consumer staples. With nearly 31% of its weight going to those ultra-defensive sectors, DTN is well-positioned as a solid idea for conservative income investors. Additionally, the exclusion of financial services stocks, many of which are waiting on higher interest rates, has benefited DTN. [No Banks, No Problem for This ETF]

“ DTN has rewarded investors and is poised to capitalize on upcoming trends such as continued low interest rates and increases in consumer spending. With a low expense ratio and a beta of .79, which indicates the fund is less volatile than the market as a whole, DTN is an attractive investment for those wanting market stability at a cost below traditional mutual funds,” notes McPiro in a Seeking Alpha post.

The WisdomTree Dividend ex-Financials Index, DTN’s underlying index, had a dividend yield of 3.43% as of Sept. 26. That compares with 2.49% on 10-year U.S. Treasuries and 1.9% on the Vanguard Dividend Appreciation (VIG) , an ETF that DTN has penchant for outperforming. For example, DTN has doubled over the past five years while VIG is up 77.7%.

“ I like the two largest sectors for DTN for a few reasons. Investors have been shying away from the utilities sector recently because that sector tends to underperform during times of rising rates. However, the Fed recently reaffirmed its commitment to a low rate policy for a “considerable time”, the phrase investors have been anxiously waiting to hear. This should give investors renewed confidence to head back into the utilities sector, as rates will continue to stay low and utilities stocks tend to have above-average dividend payouts that are lucrative during this type of market,” adds McPiro.

Conversely, DTN also offers ample rising rates protection in the form of its combined 30.6% weight to echnology, industrial and consumer discretionary names. Additionally, DTN allocates 12.3% of its weight to the energy sector, the top-performing sector during the rate tightening cycle of 2004 through 2006. [Winning Sector ETFs for Rising Rates]

WisdomTree Dividend ex-Financials Fund


Tom Lydon’s clients own shares of DTN.