Investors got a wake up call this week after the President's day: for the past two days, S&P has dropped 2.6%. We reviewed dividend stock ETFs performance in the following three equity classes:
- U.S. Equity: U.S. dividend stock ETFs appeared resilient among the market correction. For the past one week, for example, Vanguard High Dividend Yield Index (VYM) had the least loss: -0.68%, compared with SPY's 2.11% loss. In general, all U.S. dividend stock ETFs (SDY, FVD, DVY, VIG) outperformed the S&P 500 benchmark (SPY), showing that in general, dividend ETFs are more defensive during market stress.
- International Equity: similarly, Powershwares International Dividend Achievers (PID) lost only 0.69%, compared with MSCI's broadbase index EFA's 2.07% loss in the last 5 days.
- Emerging Market Equity: WisdomTree's Emerging Market Income (DEM) lost 1.57%, compared with broadbase index EEM's 2.18% loss.
Preferred stocks showed the least loss (-0.48%) among all the dividend ETFs we monitored. For more detailed performance, please refer to here.
The following table shows the trend scores for dividend ETFs. U.S. REITs (IYR), U.S. stocks (SPY) and U.S. dividend stocks (VYM, VIG) are retaining the top spots. Emerging market equity (EEM) and preferred stocks (PFF) are still at the bottom.
| Assets Class | Symbols | 02/23 Trend Score | 02/16 Trend Score | Direction |
|---|---|---|---|---|
| iShares Dow Jones US Real Estate | IYR | 11.56% | 14.05% | v |
| SPDR S&P 500 | SPY | 10.71% | 13.17% | v |
| Vanguard High Dividend Yield Indx | VYM | 10.08% | 10.94% | v |
| Vanguard Dividend Appreciation | VIG | 9.73% | 10.79% | v |
| iShares Dow Jones Intl Select Div Idx | IDV | 9.51% | 10.3% | v |
| SPDR DJ Wilshire Intl Real Estate | RWX | 9.42% | 9.83% | v |
| PowerShares Intl Dividend Achievers | PID | 8.54% | 8.66% | v |
| iShares MSCI EAFE Index | EFA | 8.21% | 9.65% | v |
| First Trust Value Line Dividend Index | FVD | 7.75% | 8.83% | v |
| iShares Dow Jones Select Dividend Index | DVY | 7.37% | 8.72% | v |
| SPDR S&P Dividend | SDY | 7.22% | 8.9% | v |
| WisdomTree Emerging Market Equity Income | DEM | 6.27% | 7.05% | v |
| PowerShares HighYield Dividend Achievers | PEY | 6.16% | 8.1% | v |
| iShares MSCI Emerging Markets Index | EEM | 3.79% | 4.99% | v |
| iShares S&P U.S. Preferred Stock Index | PFF | 3.29% | 4.06% | v |
The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).
We would like to point out that more U.S. companies are expected increase their dividend payout in 2011. In a recent report by CNBC, Senior analyst Howard Silverblatt in S&P indices stated "We estimate that over half the S&P 500 issues will pay out more in regular cash payments in 2011 than they paid in 2010," Given the current anemic economic recovery, positioning the U.S. equity portion of one's portfolio in dividend stock ETFs is a good strategy with certain defensive nature.
In fact, in the last one year, investing in dividend ETFs has slightly outperformed a strategy that invests in broadbase indices. The following table shows the performance comparison between an income focused portfolio and a general market index focused portfolio, both using a tactical asset allocation strategy.
Portfolio Performance Comparison
| Portfolio Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| Five Core Asset Index ETF Funds Tactical Asset Allocation Moderate | 12% | 100% | 10% | 85% | 12% | 87% |
| Retirement Income ETFs Tactical Asset Allocation Moderate | 13% | 102% | 9% | 76% | 10% | 69% |
Barring from a severe debt induced financial event in global markets, we view investors should pay more attention to dividend ETFs in the coming years for defensive and growth purposes.
Symbols:RWX,SPY,IYR,VIG,IDV,VYM,EEM,PID,EFA,FVD,DVY,PEY,SDY,PFF,
Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
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