Balancing act: 3 high-yield ETFs that straddle global and U.S. equities
In the quest to add high-yield assets to a client’s holdings, advisors risk upsetting the overall balance of a portfolio. Will you tilt too much to domestic equities by including one of the more popular dividend-oriented funds? Or skew too much in the other direction by selecting too many dividend stocks from outside the U.S.?
A potential solution could be a global dividend ETF that includes both domestic and foreign stocks. The three reviewed here each have assets of more than $200 million and have been available for at least five years. Similarities aside, each fund presents a different potential solution to the high-yield dilemma.
First Trust Dow Jones Global Select Dividend Index Fund (FGD, expense ratio 0.58%) holds 100 dividend-paying stocks from developed countries. REITs are excluded. The underlying index requires at least five consecutive years of dividends and that the current dividend be higher than the five-year average. Stocks must pass dividend-coverage screens and have non-negative earnings in the trailing 12 months. The 100 issues with the highest yields are included.
Launched in November 2007, FGD is the oldest of the three ETFs and has assets of $507 million. Its recent emphasis has been on the financial sector (43.11%), consumer discretionary sector (16.93%) and communications services sector (14.73%). The fund’s heaviest country weightings are in Australia (15.63%), the U.K. (14.05%) and Canada (11.27%).
For the year through June 4, FDG returned 6.32%. Through the same date, its annualized returns at 1, 3, 5 and 10 years are -5.24%, 4.81%, -0.15% and 8.07%, respectively. Morningstar projects the fund’s forward dividend yield at 8.13%.
Global X SuperDividend ETF (SDIV, 0.58%) tracks an equal-weighted index of 100 dividend-paying stocks from around the world. The fund, which has close to $902 million in assets, went public in June 2011. Its underlying index focuses on the highest yields available, with some restraints imposed for liquidity and stability.
Just over 81% of SDIV’s assets are in developed-market stocks, with U.S. issues making up 45.66% of the portfolio. Australian stocks are 12.82% of holdings, while U.K. issues are 9.53%. Real estate, including both equity and mortgage REITs, forms 39% of holdings, while stocks in financial services (15.41%) and consumer cyclical (13.05%) sectors follow. SDIV skews heavily to smaller stocks: Morningstar calculates that more than 60% of the portfolio’s weighting is in small-cap issues.
Through June 3, SDIV’s YTD return was 1.84%. One-year, three-year and five-year annualized returns through the same date are -12.24%, 0.62% and -0.98%, respectively. The fund’s forward yield, as reckoned by Morningstar, is 13.39%.
SPDR S&P Global Dividend ETF (WDIV, 0.40%) tracks an index of 100 global dividend-paying stocks that have a record of increasing or maintaining their payments to shareholders annually for at least 10 years. The fund, which has $267 million in assets, held its public offering in May 2013. Stocks from the selection universe are ranked by yield, with the 100 highest yields included in the index. Weighting is ranked by indicated dividend yield, subject to country, sector and individual issue caps.
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By country, WDIV’s largest positions are in Canada (22.20%), the U.S. (21.49%) and the U.K. (15.29%). Some 96% of the fund is invested in developed-country stocks and about half of the portfolio is large cap. Sector emphasis is on financials (24.38%), followed by utilities (13.67%) and communications services (11.96%).
Through June 4, WDIV had a year-to-date total return of 7.13%, with 1-, 3-, and 5-year returns of 0.18%, 6.35% and 3.31%, respectively. Morningstar calculates the portfolio’s forward yield at 5.12%.