ETF Focus on TheStreet: ETF research and Trade Ideas

Best Performing Dividend ETFs for November 2022

David Dierking — Thu, 01 Dec 2022 17:25:12 GMT

Every dividend ETF posted a positive return last month, but 50 of them delivered double digit returns.

For the first time in recent memory, every dividend ETF in the ETF Action database posted a positive return in November. What's more, nearly 1/3 of them generated a gain of at least 10%. It's one of the best months for dividend ETFs in a long time and put the group well ahead of the S&P 500's 5.6% gain and the Russell 2000's 2.2% return. Even as U.S. equities began turning higher in late September, more conservative strategies, including dividend growth and high yield, have remained as leaders.

The other major trend we saw in November was one we haven't seen in a while - leadership from international stocks. This group has offered investors good value for some time, especially emerging markets, but the bear market of 2022 has mostly kept investors focused on the relative safety of the U.S. markets. The rally in the dollar, which gained steam very consistently from the start of the year through September, further enhanced gains in domestic stocks.

That trend has since reversed. The dollar is headed lower again and that's been a tailwind for foreign stocks. The latest leg of the currently hasn't been led by growth and tech as it often has in the past. This run is being powered by low volatility, dividends and value stocks. Growth tends to outperform when a positive economic cycle is already established, but when a new cycle is trying to establish itself, value often takes the lead. That's what happened in November as investors eyed a slowdown in rate hikes from the Fed and the idea that a recession might not come until well into the 2nd half of 2023.

Whether the dividend stock leadership theme carries forward into 2023 remains to be seen, but it was undoubtedly the sector of choice for investors in November.

Here's the list of the best performing dividend ETFs for November 2022.

Best Performing Dividend ETFs for November 2022

Every one of the top performing dividend ETFs last month had at least some international flavor, whether it focused on the broader global equity universe or stuck strictly with international or emerging markets stocks. The winner was the KraneShares S&P Pan Asia Dividend Aristocrats Index ETF (KDIV). This tiny $2.5 million fund targets companies from China, Japan, Australia, and other Asian countries that have raised their dividends for at least 7 consecutive years and weights them according to their dividend yield.

The 2nd place finisher, the SmartETFs Asia Pacific Dividend Builder ETF (ADIV), takes an approach that focuses more on fundamentals. It focuses on companies with balance sheet health and high quality dividend growth. It concentrates its portfolio in roughly 35 equally-weighted positions.

Dividend ETFs focused exclusively on emerging markets have offered enticing yields of 8% or more for months now, but the volatility, China drag and generally poor performance have made them untenable for many investors. Those deciding to ride out 2022's challenging conditions were finally rewarded with big returns in November. Among the best performers - the ProShares MSCI Emerging Markets Dividend Growers ETF (EMDV), the WisdomTree Emerging Markets Quality Dividend Growth ETF (DGRE), the AAM S&P Emerging Markets High Dividend Value ETF (EEMD) and the iShares Asia/Pacific Dividend ETF (DVYA) all managed gains of more than 15%. Interestingly, all of them utilized a different dividend strategy - dividend growth, dividend quality, high yield and pure beta - to generate their returns, indicating that favorable conditions existed for emerging markets broadly last month.

One ETF that I've owned in the past - the WisdomTree Emerging Markets High Dividend ETF (DEM) - also made the list. The fund's 9% yield was always one of the bigger draws, but its forward P/E ratio of just 6-7 and the fact that the portfolio is trading for less than book value demonstrates its clear value. I'm happy to see it finally having a moment.

Best Performing Dividend ETFs for November 2022

More international flair in the rest of the top 30 (in fact, you'd have to look all the way down into the 50s to find a dividend ETF that invests solely in U.S. stocks). The one in this group that stands out to me is the Pacer Global Cash Cows Dividend ETF (GCOW). This ETF has made several appearances in the monthly top performer lists and has been one of the biggest success stories in what's been a terrific year for Pacer. The fund's focus on high free cash flow yielders, the same one that the Pacer Cash Cows 100 ETF (COWZ) also uses, has been one of the year's best strategies.

The VictoryShares Emerging Markets High Dividend Volatility Weighted ETF (CEY) is also a standout to me. Low volatility strategies had a rough year in 2021, but have come back strongly this year. High yielders, in general, have outperformed dividend growth, but combining high yield with low volatility has helped offer investors the best of both worlds.

The Best Trade Opportunity Of 2023? It's Setting Up To Be Treasuries

David Dierking — Mon, 28 Nov 2022 15:55:49 GMT

Don't be scared off just by what Treasuries have done this year.

The Treasury bond market has experienced an historically anomalous year in 2022. Slowing economic growth and the threat of recession should have pushed investors towards the safety of Treasuries, but the opposite happened. Soaring inflation and a strong (albeit late) response from the Fed sent interest rates sharply higher.

Government bonds weren’t a safe haven. They were a liability.

The result has been one of the worst years for Treasuries ever, but it’s been especially painful on the long end of the curve. At its low point, the iShares 20+ Year Treasury Bond ETF (TLT) was down more than 40% from its peak. It’s still down roughly 30% year-to-date.

iShares 20+ Year Treasury Bond ETF (TLT) Chart

If you look at that chart though, you’ll see that the month of November doesn’t look like the rest of 2022.

Long-term Treasuries are off to the races again. Sure, it’s easy to say “the economy is slowing” or “we’re getting closer to recession” as catalysts, but this belief has been in place for months and Treasuries have continued to decline. The difference now is that it finally looks like we have a consensus terminal Fed Funds rate priced into the market.

Throughout 2022, the narrative has been that of rising inflation and interest rates. Expectations for where the Fed was going to set the Fed Funds rate started out mild at the beginning of the year, but continued to climb higher and higher.

source: FedWatch

The upward trend of most of these lines in this chart, especially during the first half of the year, reflect how quickly forecasts were being revised higher. At the beginning of March, the Fed Funds futures market was essentially pricing in a 0% chance that the Fed Funds rate on March 2023 would be 2.5%. A month and a half later, the odds were nearly at 100%.

During the summer when investors were caught up in the idea that a Fed pivot was coming, Fed expectations moderated and even came down a bit. That was before Powell shot down the idea in a speech and rates were on the rise again.

But look what’s happened since mid-October. The market’s expectation for the terminal Fed Funds rate has remained roughly the same. Sure, there’s some debate about whether they stop at 4.75% or 5%, but the broader idea is that the yield curve is no longer shifting higher.

If inflation has peaked and the markets sense they know where and when the rate hikes will stop, Treasuries can begin trading on fundamentals again and not on Fed policy.

That means they can start trading on recession risk, which is exactly what I think is happening now. The terminal Fed Funds rate has been priced in and Treasuries are starting to act like a safe haven again.

There are a couple of wild cards though.

We don’t know whether inflation has peaked or not. We’ll get a better idea when the November number is released in about two weeks. Energy prices have been falling steadily for three weeks and that could be the driver behind another drop in the headline rate. The core rate might not be done moving higher yet. If the jobs number this week still looks strong and the core inflation rate in November creeps higher, Treasuries might have another leg lower in them.
While the path is important, a recession might not actually show up until 12 months from now or even longer. There’s still plenty of room for equities to rally on an actual Fed pivot in the 1st half of 2023 or some other catalyst (China reopening, peace deal in Ukraine).

In my opinion, the overall trend in interest rates for 2023 is lower. Conditions could still shift in the short-term, but I think the recession narrative controls the year and the Fed will at least be thinking about a rate cut in the 2nd half of the year even if they don’t pull the trigger.

That means Treasuries could be a potential high reward play in 2023.

iShares Treasury Bond ETFs

How strong of a swing you might want to take at this depends on your risk tolerance. TLT would deliver the biggest returns in such a scenario, but that will be awfully volatile.

I actually like the iShares 1-3 Year Treasury Bond ETF (SHY) as having the best risk/reward tradeoff. Share price downside is still relatively limited even if rates continue moving higher, but the 4.5% yield is a really nice income opportunity just for holding.

The bear market in fixed income will likely scare off a lot of investors, but ETF flows over the past month show people already moving back in. I think this will prove to be one of the best opportunities for investors in the new year.

ETF Equity Sector Overview

ETF Sector Overview

Defensive and cyclical sectors remain the strongest at the moment even as the broader averages continue to climb higher. Utilities have actually been quite choppy recently, but healthcare and consumer staples have been steady outperformers throughout. I do have some questions about what the November inflation report will look like and believe that cautious positioning could be the best course of action in December. Dividend growth stocks could be a particularly attractive play.

Growth and tech are still having a tough time getting going and I don’t think the latest macro developments will help. The new COVID lockdowns in China could put pressure on supply chains again and add another layer of complication to sectors already struggling with revenues and earnings.

Crude oil prices have been steadily declining for weeks now. WTI crude is down from $90 to $75, touching its lowest level in nearly a year. Add in what’s likely to be lower demand from China and it looks like energy stocks are entering a period of potentially persistent underperformance.

One thing worth noting is that the S&P 500 is on the brink of moving above its 200-day moving average for the first time since April. This is a closely watched technical indicator and could ignite a level of buying if it’s able to break through and remain there.

New Bull Market or Another Bear Market Fakeout?

David Dierking — Mon, 14 Nov 2022 16:50:14 GMT

Last week provided a much needed bullish jolt. Will it last or are we looking at another repeat of this past summer?

Last week’s market rally was an across the board move higher in asset prices. Not only did the S&P 500 post a nearly 6% gain on the week, small-caps, Treasuries and even gold (yes, gold!) delivered huge gains!

The global catalyst, of course, was an unexpectedly lower reading on October inflation. The headline rate fell to 7.7%, its lowest since January, while core inflation dipped slightly to 6.3%. Both numbers are still nowhere near where the Fed wants to see them, but it is an improvement. Goods inflation is coming down significantly (think cars, electronics, home goods), but services inflation remains stubbornly high. It’s the latter piece that tends to take longer to come down, so we’re not out of the woods by any stretch. I still expect to see elevated inflation readings into the end of 2023, albeit at far lower than the levels we’re at now.

Let’s break down the rallies in each of the major asset classes.

Small-caps & Large-caps

Equity investors were waiting for this. Sentiment was still quite negative heading into last week, although it had been improving slightly. We’ve seen throughout 2022 that the only thing the markets have really responded favorably to is a positive inflation development or a dovish development from the Fed. Even though inflation is still way above the Fed’s target level and will continue to stay high for at least another couple quarters, investors were looking for any reason to get bullish again and the October report gave it to them.

My expectation is that this helps carry stocks through the end of the year, but not far beyond that. The end of the year tends to be positive for risk assets and this could very well be the push that gets things going. We shouldn’t get too many surprises before the end of the year. We kind of know what we’re getting out of the Fed. The Q3 earnings season is mostly done. We’re getting some clarity out of the midterm elections. The only thing that might derail this newly found positive sentiment is the November inflation reading coming in a few weeks. If that shows more easing, we could be positioned for a nice rally heading into the new year.

That being said, I don’t believe it lasts. As inflation eases and the Fed nears an end to its rate hiking program, we’re probably looking at favorable conditions for stocks. After that, the recession narrative takes over. The data suggests there probably isn’t an imminent threat of recession any longer, but it will instead get likely pushed into the second half of 2023. There are already signs of revenue and earnings trouble from several names, including Apple, Walmart and Alphabet. Consumer spending is holding up for now, but savings is running out and the high cost of basic needs is still altering spending habits. All sorts of companies are announcing layoffs and hiring freeezes, so an increase in the unemployment rate is probably inevitable at this point. These are catalysts that might be slow moving on a short-term basis, but eventually tend to result in recession.

Treasuries

The bond market has consistently reacted to Fed expectations throughout the past 12 months more than anything else, so it’s no surprise they rallied from the perception that lower inflation will lead to a lower terminal Fed Funds rate.

The degree of the rally, however, was a bit surprising to me. From peak to valley last week, the 10-year yield dropped more than 40 basis points. That’s an incredibly strong move that could bode very well for the longer-term prospects for fixed income.

I’ve been overweight Treasuries in my personal portfolio for a while now. So far, that hasn’t really paid off, but I do like how 2023 is setting up. Treasury yields should continue to moderate as the pace of Fed hiking eases and eventually concludes. As investors switch their focus to recession risk, Treasuries should have another tailwind of buying support.

I wouldn’t be surprised if long-term Treasury yields started sliding back towards 2% at some point in 2023 and investors are able to capture double digit gains.

Gold & U.S. Dollar

Here’s perhaps the biggest winner of last week. We all know well that gold has failed to provide the inflation hedge that many were expecting heading into 2022 (again, gold isn’t really correlated to stocks or bonds, so there was always roughly a 50/50 chance that it would or wouldn’t work). The one thing that gold has been reasonably correlated to in the past is the dollar. Specifically, if the dollar goes up, gold tends to go down and vice versa.

Since April, gold and the dollar have maintained a stronger than average negative correlation. With the greenback soaring, that resulted in gold falling more than 20% from its 2022 high.

That has now reversed. The dollar is in the process of tanking over the past two weeks and gold has been taking off. As I noted on Twitter this week, gold just had its 15th best week since the gold ETF launched back in 2004.

Gold Performance Weekly

I don’t think the dollar will decline at quite the rate it has over the past couple weeks, but I do think it will progressively move back towards its long-term equilibrium level of 100. If that occurs, expect further above average returns in gold and…

International Equities

Yes, international equities have been an investor albatross for a while, but a falling dollar is a tailwind for international stocks. That alone doesn’t make foreign investments a roaring buy, but it does create a scenario where they outperform the S&P 500.

We saw that in developed markets stocks last week as sentiment slowly starts improving in Europe, but emerging markets have still struggled. I think the COVID reopening trade in China is overblown and there’s growing political risk in Brazil, even after the recent election. Risks are still elevated, but I do believe in the longer-term story of international stocks over the S&P 500.

ETF Sector Analysis

Last week’s rally pushed short-term relative strength in every major sector, but the composition has changed dramatically. Defensive sectors had been in the lead with selective strength in cyclicals. Cyclicals are still looking fairly strong here, but growth, tech and high beta clearly had the best week. These are the areas that had been the most beaten down over the past several months, so it’s reasonable that they would be the best performers in a reversal. Several tech subsectors, including semiconductors, software and cybersecurity, posted double digit gains.

Consumer discretionary was the notable laggard among growth sectors as it actually underperformed the S&P 500. As I mentioned above, the retail environment is trending worse and consumer spending habits will continue to adjust as long as inflation remains persistent. Short-term conditions through the end of 2022 probably still favor growth and cyclicals as long as the narrative doesn’t do a sudden about face. Longer-term, I’m still in the camp of defensives, low volatility and dividend stocks.

VIG vs. NOBL: Which Is The Better Dividend Growth ETF?

David Dierking — Tue, 08 Nov 2022 19:15:13 GMT

Despite both ETFs being viewed as dividend growth vehicles, their portfolios actually look very different.

After years of lagging both the S&P 500 (SPY) and the Nasdaq 100 (QQQ) while mega-cap growth and tech names dominated the markets, dividend stocks are finally making a comeback. Unfortunately, it's taken a 20% correction in U.S. stocks to get us to the point where dividend payers are outperforming again, but it's also demonstrated why it's so important to hold these in a portfolio.

Dividend growth remains one of the most durable long-term investing strategies there is. Even though the group collectively has been lagging high yield equities so far this year, dividend growth has one of the best long-term track records in the markets. Dividend payers have outperformed non-dividend payers and dividend growers have been able to outperform the broader dividend stock universe. Better yet, the predictability of income streams is great for retirees or anyone looking to live off of their portfolios for income.

Within the dividend growth ETF universe, there are two funds that stand out - the Vanguard Dividend Appreciation ETF (VIG) and the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). They both invest in companies that have paid and grown their dividends for many years, but they also use different targeting criteria when building their portfolios. The high level "dividend growth" strategy may make it seem like the two ETFs are essentially the same or are interchangeable, but they aren't. The two ETFs are actually quite dissimilar and investors need to look under the hood to see where and what those differences are.

Vanguard Dividend Appreciation ETF (VIG) vs. ProShares S&P 500 Dividend Aristocrats ETF (NOBL)

Let's start by talking about how the two funds are different in terms of which companies they target before getting into how the portfolios themselves differ.

VIG tracks the S&P U.S. Dividend Growers Index. In order to qualify for this index, stocks must have grown their annual dividend for at least 10 consecutive years. The top 25% highest yielding eligible companies from the starting universe are excluded from the index. REITs are ineligible and the final portfolio is market cap weighted.

NOBL tracks the S&P 500 Dividend Aristocrats Index. In order to qualify for this index, stocks must be a member of the S&P 500 and have increased their annual dividend every year for at least 25 consecutive years. The final portfolio is equal weighted.

Some of the differences are subtle, but the biggest difference is the consecutive annual dividend growth requirement. VIG at 10 years and NOBL at 25 years may not seem like a big gap, but it actually is.

Companies that hit the 25-year mark are generally more mature in nature and come from industries that enjoy steady demand throughout all market cycles. Think consumer staples, healthcare and utility names. Companies don't necessarily need to come from one of these industries, but they do need to be big cash flow and revenue generators.

What VIG's smaller 10-year growth requirement does is open the door to emerging long-term dividend growers. They can certainly include the names that appear in NOBL, but there's a broad universe of younger and more growth-oriented companies that can qualify for VIG. For example, Microsoft (MSFT) and Visa (V) have raised their dividends for 17 years and 13 years, respectively. Because of the cap weighting, those two companies reside in VIG's top 10. Because the U.S. equity market has become more heavily skewed towards the tech sector, stocks in this industry are more likely to receive larger weightings if they meet the dividend growth requirement.

Fund Overlap

It's easy to see this idea play out if you compare the composition of the funds.

Fund Overlap: VIG vs. NOBL (source: ETFRC.com)

Despite both being labeled as dividend growth ETFs, there's only a 29% overlap between the two funds. What's more striking is the sector breakdown.

NOBL is overweight in some of the traditionally stodgier sectors, including consumer staples, industrials and real estate (remember, VIG removes REITs altogether). VIG, however, has a huge overweight in tech. If you figure that a lot of the tech and tech-adjacent names had to trim things down coming out of the tech bubble and were only able to reinstitute a steady dividend years later, it makes a lot of sense that we see some many falling into that 10-25 year dividend growth area.

Again, you can expect to get a little more growth pop with VIG, but it also helps explain why VIG has been a big laggard within the dividend ETF universe this year.

Sector Allocation

Viewed another way, VIG's tech sector allocation is more than 4 times that of NOBL's.

Sector Composition: VIG (blue) vs. NOBL (gray) (source: ETF Action)

VIG also has fairly sizable overweights in both healthcare and financials. NOBL has much more of a cyclical tilt by holding comparatively larger positions in materials, energy and industrials along with consumer staples.

These are some pretty large discrepancies between two funds that you'd think would be more similar than they are, not just in terms of composition, but in terms of investor risk.

Risk Profile

Considering the sector allocation profiles of VIG and NOBL, it'd be easy to assume that VIG is the riskier of the pair. Over the past 5 years (NOBL is only 9 years old, so we don't have 10-year numbers to look at), that's not been the case.

Risk Analysis: VIG vs. NOBL (source: ETF Action)

Using either the beta or standard deviation of returns, NOBL has actually been slightly riskier than VIG. That's interesting because that five-year period comprises two very risk-off periods - the initial COVID bear market and the 2022 bear market. You'd think that would work in favor of NOBL, but the bull rallies that were sandwiched around those drawdowns also get factored in and those were relatively low volatility periods overall, a condition that would have been more favorable for VIG.

The Sharpe ratio, Information ratio and alpha numbers all tell the story. VIG has produced better risk-adjusted returns historically. The up and down capture ratios also demonstrate that NOBL has actually had the wider range of returns over time. NOBL has done a little better than VIG in up markets, but it's also underperformed in down markets. The overall net effect works in VIG's favor, at least historically speaking.

Fundamental Analysis

The fundamental valuation aspects of the two funds play out more like what you'd expect. VIG's growthier tilt lends itself to a slightly more expensive portfolio overall.

Fundamental Analysis: VIG vs. NOBL (source: ETF Action)

VIG's portfolio comes with higher valuation metrics - price/earnings, price/sales, price/book and price/cash flow are all higher than NOBL. NOBL's portfolio, however, consists of higher gross and net margins as well as a high dividend yield.

Generally speaking, growth-tilted portfolios tend to be a little more expensive, which is what we see here. The dividend aristocrats are usually more well-developed companies with strong balance sheet health and cash flows, which is also what we see here as well.

If you look at the style boxes for these two ETFs, NOBL tilts a bit more towards the value end of the spectrum. That's something that has certainly worked in its favor in 2022, but much less so in the years prior to it.

Conclusion

VIG and NOBL would both make excellent additions to almost any diversified portfolio. NOBL is probably your more traditional long-term dividend growth vehicle. VIG also demonstrates dividend growth, but its expanded universe of potential stocks adds more of a growth element due to the addition of greater tech exposure.

What investors should take away here is that despite recent data suggesting otherwise, VIG should be considered a slightly more volatile ETF than NOBL going forward. Having a much higher allocation to tech and growth should inevitably lead longer-term risk measures in that direction. That could also lead to better long-term performance, but returns are heavily dependent on the market cycle of the moment. That's especially been the case in 2022.

I do wish that VIG and NOBL both had a forward-looking aspect to dividend growth potential. Both strictly look at what happened in the past and that could lead to holding positions that are vulnerable to dividend cuts in the future. Granted, many of these companies will go to great lengths to preserve their dividend growth track records, but it's no guarantee that it will happen.

Election Day Could Be Ready To Rally Stocks

David Dierking — Mon, 07 Nov 2022 23:35:59 GMT

Midterm election years tend to results in above average gains for equities.

The U.S. midterm elections take place on Tuesday. No, I don’t want to have a political discussion, but I do want to talk about how the outcome could impact your portfolios. If the election results end up looking like it seems they will, investors could have reason to feel optimistic about the remainder of the year.

People will try to decipher all sorts of trends in historical stock price movements. The January effect. The Santa Claus rally. Sell in May and go away. They’ve got this sort of “feel good indicator” aspect to them, but they’re not really based on any macro level data or fundamentals.

The election year indicator could be different. Or in this case, the midterm election year indicator, which basically says that stocks tend to perform better than average in this midpoint year in between presidential election years. On top of that, November also tends to be an historically strong month for equities as well.

The logic behind it has some merit. Over the course of history, it’s been demonstrated repeatedly that the party in the White House tends to lose seats in Congress during the midterms. This tends to bring more of a balance between the executive and legislative branches of government and helps limit some of the more aggressive policy tactics of one party or the other. While the government ship is usually slow to turn, a split government is often considered more market-friendly.

Historically, midterm election years tend to start slow but pick up speed in the lead up to and after the election itself.

The path of returns makes sense. During the first half of the year, the outcome of the elections is still uncertain and investors aren’t sure yet about the market impact of the pending political environment. As we get closer to election day, we get much more certainty around how the election is going to play out and investors begin positioning themselves accordingly.

This year, it’s very likely that we’re going to end up with a split government. Joe Biden, of course, will remain president until 2024. The House of Representatives seems almost certain to flip from Democratic to Republican control. The Senate could still go either way. From a market perspective, this is the most advantageous spot for investors.

Over the past 90 years, we’ve seen the strongest market returns come during the 4th quarter of midterm years. On average, the S&P 500 gains around 6% during this three-month period. 2022’s path of returns make the math a little more complicated. The S&P 500 is already up 5% since the beginning of the quarter. While that could be interpreted as the gains have already been had, I suspect this year is an outlier. The S&P 500 is still down 20% on the year and there’s a little more upside potential than in past years. Plus, returns tend to be steady throughout the quarter, especially in the immediate post-election period.

In other words, history is telling us that the remainder of 2022 is setting up to be quite a positive one for risk assets, at least in terms of the current election cycle.

The gains aren’t just limited to the immediate post-election period either. Stocks have historically performed very well in the 12-month period following a midterm election.

The S&P 500 is a perfect 18-for-18 in posting positive returns in the year following a midterm. Not just positive returns, significantly positive returns. On average, the S&P 500 has gained 15% in the following 12 months, more than double what the index typically returns.

Does this mean that there are double digit returns ahead? History would suggest that the odds are good, but we’ll see if it plays out again this time. It looks like we’re heading into a recessionary period with a housing market that’s crumbling, a war in Ukraine and double digit inflation all over the world. That’s not exactly the types of conditions that occurred during prior midterm years. That could make 2022 a true outlier.

ETF Sector Analysis

Last week marked a real shift in sentiment. Investors had been bidding up more speculative and riskier assets in anticipation of a potential Fed pivot that never came. Post-Fed, the shift was made over to defensive and cyclical sectors and away from the growth sectors that had been in favor. That much is clear looking at short-term relative strength.

Energy remains the clear winner in this market, but financials, industrials and, to a lesser extent, materials are moving into leadership. Defensive sectors made a sharp turnaround, but not to the point where I’d consider them looking strong. Utilities are still in questionable shape and have turned much more volatile than they’ve been at any point since the start of the COVID pandemic.

Tech and growth are looking pretty ugly here. Earnings were poor, layoffs are coming and outlooks are being downgraded. Even though tech stocks took a beating around earnings, I think there’s still plenty more downside risk ahead.

Best Performing Dividend ETFs for October 2022

David Dierking — Tue, 01 Nov 2022 16:43:37 GMT

Dividend ETFs had a terrific month with all major dividend strategies posting gains of 10% or more.

Throughout 2022, we've seen dividend stocks and dividend ETFs hold up much better than the S&P 500. As the bear market has deepened, investors have pivoted back to defensive sectors and themes, including utilities, low volatility and value. Much of the trend from the 1st half of the year was losing less than the market, but October turned out to be the opposite. Dividend ETFs had a terrific month with all major dividend strategies posting gains of 10% or more.

The reasons for this, of course, can be very subjective. Some investors are scooping up stocks on the belief that the Fed is going to make a slightly dovish pivot this week and indicate that the pace of rate hikes is going to slow. There was the Q3 GDP report that definitionally would end the technical recession the U.S. economy has been in this year. Others believe that inflation is peaking and that will be the impetus that causes the Fed to take its foot off the pedal.

One reason could simply be that market sentiment in September was about as bad as it could get. There was so much gloom & doom and so much selling in risk assets that investors couldn't see a silver lining in any of it. Many would view that as a contrarian indicator. As Warren Buffett would say, "be greedy when others are fearful", and I think that had a hand in the October rally.

It wasn't necessarily a big shift towards risk taking. The fact that dividend payers outperformed the S&P 500 is a sign that there's still a bit of caution in the markets. Given how rough Q3 earnings looked within the FAAMG names, there's probably some reluctance to push heavy back into growth stocks again, but it could all come down to what the Fed does this week. Investors are probably going to be very forgiving of earnings and things like that if the Fed signals that it's about to loosen conditions again.

In the meantime, it was a good time to be a dividend investor and that's merely an extension of the behavior we've been seeing all year.

Here's the list of the best performing dividend ETFs for October 2022.

Best Performing Dividend ETFs for October 2022

It's not often you see such a simple strategy near the peak of the top performer list, but that's what we get this month in the Invesco Dow Jones Industrial Average Dividend ETF (DJD). This fund effectively takes the Dow 30 and weights it by trailing 12-month dividend yield. That's it! A simple strategy that was surprisingly effective as its high yield/value/low volatility tilt checked all the boxes and returned nearly 14% last month. Its 3.6% yield isn't the highest you'll find in this segment of the market, but it is nearly twice that of the cap-weighted Dow 30.

The next batch of top performers all focus on small-caps. WisdomTree lands a pair in the top 5 with the WisdomTree U.S. SmallCap Quality Dividend Growth ETF (DGRS) and the WisdomTree U.S. SmallCap Dividend ETF (DES). DES is the $2 billion fund that covers the broader small-cap dividend stock universe, while DGRS layers on both growth & quality screens. The quality factor hasn't necessarily been a source of outperformance this year, but small-caps have pretty consistently led large-caps in 2022 as they did especially in October. The WisdomTree U.S. High Dividend ETF (DHS), which falls a little further down the list, is an all-cap high yield fund.

The VictoryShares U.S. Small Cap High Dividend Volatility Weighted ETF (CSB) is the sibling to the VictoryShares U.S. Large Cap High Dividend Volatility Weighted ETF (CDL), a fund that I have touted on this site more than once. These funds both take the 100 highest-yielding stocks from within their index subsets and weight them by the inverse of their daily standard deviation of returns. CSB's small-cap value tilt hit the sweet spot of where the market saw some of its greatest gains last month.

The TrueShares Low Volatility Equity Income ETF (DIVZ) is one of the few dividend ETFs that has actually posted a positive return on the year. It's an actively managed, concentrated portfolio comprised of 25 to 35 favorably-valued companies with attractive dividends that the portfolio managers expect to grow over time.

Best Performing Dividend ETFs for October 2022

The 2nd 15 features a number of the biggest and most familiar dividend ETF names. The Vanguard High Dividend Yield ETF (VYM) and the Schwab U.S. Dividend Equity ETF (SCHD) are consistently in the top 5 of my dividend ETF rankings. The Invesco High Yield Equity Dividend Achievers ETF (PEY) remains one of my favorite funds. It bridges the gap between long-term dividend growers, a traditionally lower-yielding group, and high dividend yields.

The Invesco KBW High Dividend Yield Financial ETF (KBWD) is a highly aggressive ETF that expands its definition of "financial" to include things, such as mortgage REITs and BDCs. When conditions are right for these securities, like they were in October, the fund can deliver big returns and the 12% yield looks enticing, but things can get ugly if this group falls out of favor.

A quick shout out to a couple of the newer funds on this list. The Emerge EMPWR Sustainable Dividend Equity ETF (EMCA), the USCF Dividend Income ETF (UDI) and the Touchstone Dividend Select ETF (DVND) have all debuted within just the past few months, but have gotten off to healthy starts. ECMA targets dividend payers that meet specific ESG criteria. UDI also uses an ESG approach but also layers on several quality screens to its portfolio's components. DVND focuses on large-cap dividend growers with sustainable competitive advantages.

Best Blockchain ETFs (Updated November 2022)

David Dierking — Tue, 01 Nov 2022 13:30:00 GMT

There's little doubt that blockchain has the potential to be a revolutionary technology. Here are the best ways to invest in it.

There's little doubt that blockchain has the potential to be a revolutionary technology. As an investment, blockchain stocks have followed the familiar boom/bust cycle that's common to many nascent products and technologies. After stagnating for a couple years, blockchain stocks really took off following the COVID recession bottom. In the 11 months following the March 2020 low, the Amplify Transformational Data Sharing ETF (BLOK) gained more than 360%.

Of course, the bear market of 2022 has had its way with more speculative technology companies and the blockchain space was not spared. BLOK currently sits about 65% below its all-time high and may head even lower before all is said and done. Some ETFs have done even worse. Blockchain will continue to develop as a disruptive innovation in the defi space, but 2022 is a good reminder that as an investment it will remain very volatile until the industry matures more and price discovery is made.

The blockchain ETF space has grown about as rapidly as blockchain itself. The first four blockchain ETFs debuted within days of each other in early 2018 (fun fact: none of them have "blockchain" in the name because the SEC was concerned it was too hot of a buzzword at the time and would attract speculators that didn't understand what they were buying). BLOK was the first one to launch and to this day remains easily the largest ETF in the sector with assets of more than $500 million.

Today, there are more than 20 ETFs that fall under the blockchain umbrella in some way. The original funds focused on blockchain stocks, but now you've got some that sprinkle in crypto or crypto futures exposure as well. It's become one of those groups where you really need to dig into the fund to discover how it works and what it's invested in. As much as almost any other market segment, blockchain ETFs can look VERY different despite having similar names. They're far from interchangeable and some homework is required!

Ranking The Blockchain ETFs

The variety of ETF choices makes distinguishing the best from the rest a little challenging. You've probably heard most financial pundits talk about focusing on funds with low expense ratios. That can certainly be a big factor in deciding which ETF to go with (it's probably the most important factor, in my view), but there are a lot of things that could go into making the right choice.

That's where I'm going to try to make things easier for you. Using a methodology that I've developed, which takes into account many of the factors that should be considered and weighting them according to their perceived level of importance, we can rank the universe of available ETFs in order to help identify the best of the best for your portfolio.

Now, this certainly won't be a perfect ranking. The data, of course, will be objective, but judging what's more important is very subjective. I'm simply going off of my years of experience in the ETF space in helping investors craft smart, cost-efficient portfolios.

Methodology & Factors For Ranking ETFs

Before we dive in, let's establish a few ground rules.

First, all of the data is used is coming from ETF Action. They have gone through the ETF universe to identify and categorize those ETFs used here. There are many that qualify and we'll be using their categorization as a starting point. Many thanks to them for opening up their vast database for my use.

Second, let's run down the factors I used in the ranking methodology.

Expense Ratio - This is perhaps the most important factor since it's the one thing investors can control. If you choose a fund that charges 0.1% per year over a fund that charges 1%, you're automatically coming out ahead by 0.9% annually. You can't control what a fund returns, but you can control what you pay for the portfolio. Lower expense ratios equal more money in your pocket.
Spreads - This relates to how cheaply you can buy and sell shares. Generally speaking, the larger the fund, the lower the spreads. Bigger funds usually have many buyers and sellers. Therefore, it's easier to find shares to transact and that makes them cheaper to trade. On the other hand, small funds tend to trade fewer shares and investors often need to pay a premium to buy and sell. Considering expense ratios and spreads together usually give you a better idea of the total cost of ownership.
Diversification - Generally speaking, the broader a portfolio is, the better chance it has at reducing overall risk. A fund, such as the Energy Select Sector SPDR ETF (XLE), provides a good example. 45% of the fund's total assets go to just two stocks - ExxonMobil and Chevron. By buying XLE, you're putting a lot of faith in just those two companies. An equal-weighted fund, such as the Invesco S&P 500 Equal Weight Energy ETF (RYE), would score higher on diversification than XLE.
FactSet ETF Scores - FactSet calculates its own proprietary ETF ranking for efficiency, tradeability and fit. They basically are designed to tell us if an ETF is doing what it sets out to do. I'm not going to copy and paste that work that they're doing, but there is some influence there to make sure my rankings are on the right path.

There are a few other minor factors thrown into the mix, but these are the main factors considered.

One thing that is not considered is historical returns. Most ETFs are passively-managed and are simply trying to track an index, not outperform. ETFs shouldn't be penalized for low returns simply because the index they're tracking is out of favor at the moment.

I'm ranking ETFs based on more basic structural factors. Are they cheap to own? Are they liquid? Do they minimize trading costs? Do they maintain risk-reducing diversification benefits?

Being in the bottom half of the list doesn't automatically make a fund "bad". It simply means that due to a low asset base, a high expense ratio, a concentrated portfolio or some other factor, it poses additional costs or downside risks.

Best Blockchain ETF Rankings

The blockchain ETF space consists of just a couple major players and a number of other issuers trying to gain traction. Three of the four original blockchain ETFs are the only ones with more than $100 million in assets, but they land at very different spots on the list.

Best Blockchain ETFs

BLOK, despite landing at #3 on this list, remains my favorite for investing in blockchain. I've maintained this stance for quite a while and the logic for doing so is simple - it's an actively-managed fund at the price of a passively-managed one in a very dynamic industry. Active management sometimes gets a bad rap. People complain that it's too costly and has a long history of failing to keep up with the benchmarks. That's mostly fair, but there are times when it makes sense. Blockchain investing is one of them. The industry is changing so rapidly that you want your investments to be able to respond accordingly. Some index funds only rebalance or reconstitute every 3 or 6 months. If there's some type of major legislation passed or some development, do you want to be stuck with the existing portfolio for another few months unable to make changes? I want an active fund that can respond right away. BLOK does and it's become the face of the blockchain ETF group.

The #1 spot, however, goes to the Schwab Crypto Thematic ETF (STCE). It's not often that a fund that's only two months old immediately moves into the top spot of the rankings, but that's the case here. Cost is a major factor. Its expense ratio of just 0.30% is at least 20 basis points cheaper than almost every other fund on this list. The tiny $8 million asset base would usually result in wider spreads and higher trading costs, but that's actually not so much the case here. STCE has one of the narrower spreads in this group and that combination of comparatively low expenses and low trading fees is a win for shareholders. The fund's investments include companies engaged in mining, trading, banking, or implementing applications of blockchain technology.

The Siren Nasdaq NextGen Economy ETF (BLCN) was the 2nd blockchain ETF to launch, but it's fallen well off the pace of the best funds out there. It obviously lost out on the first mover advantage that BLOK benefited from and even though there's a larger asset base here compared with its peers, its cost structure doesn't really separate itself from the pack.

The Capital Link Global Fintech Leaders ETF (KOIN) is a good example of how a fund's objective and strategy doesn't produce the right end result. Its methodology is reasonable enough - it uses AI to determine involvement in the industry and weights components according to their ranking and perceived exposure - but the final portfolio doesn't provide, in my opinion, enough exposure to pure blockchain. The top holdings include IBM, Mercedes, Visa, Samsung, Oracle and Salesforce. These are companies developing blockchain solutions, but it's such a small part of the overall business model. This ends up looking more like a generic tech fund than a blockchain one. KOIN switched indexes at the end of last year, which resulted in a somewhat lesser focus on blockchain specifically, but I think there are better options out there.

The Bitwise Crypto Industry Innovators ETF (BITQ) deserves a mention. Bitwise is the world's largest crypto index fund manager, which means you may not find a company better suited to run a blockchain ETF than this one. It weights more heavily towards pure play innovators, which is a definite advantage, but much of the portfolio is market cap weighted and tied to an index. There are plusses and minuses, but having Bitwise managing BITQ should probably bump it up a few notches from where it is.

5 Dividend ETF Picks For November 2022

David Dierking — Mon, 31 Oct 2022 13:30:00 GMT

October produced big returns for dividend investors, but November might be a different story.

October has a reputation as one of the worst months of the year for equities. The numbers back that up, but October 2022 was actually a pretty good one for investors. There was some carnage in the tech space as Meta (META), Alphabet (GOOG), Amazon (AMZN) and Microsoft (MSFT) all saw their share prices take major hits around Q3 earnings reports.

Overall, however, it was mostly green. The S&P 500 is up around 6%, while the Russell 2000 small-cap index has gained more than 8%. With so much data painting a gloom & doom outlook, why were stocks suddenly ripping higher? I believe part of the reason is that there was already a "worst case scenario" getting baked into stock prices and sentiment had almost nowhere to go but up. Our old friend, the Fed pivot, made its way back into the narrative. Investors are starting to, again, talk themselves into the idea that the Fed is going to soon end its rate hiking cycle and become more accommodative in the future. It's the same thing that sparked the summer rally, but I'm not sure it's going to last this time around either.

Dividend stocks had a good month as well. Dividend growth and dividend quality both posted around 8% gains in October, but high yield in some cases added 10%. If you were a dividend income investor, returns were pretty consistently good across the board no matter where you put your money. Yields in the 3-4% can still be had in many ETFs, which is a welcome change after years of scraping by.

I'm worried that November could be a different story. This October rally has been enjoyable, but there's ample evidence to suggest it probably won't have legs. Tech earnings demonstrated consumer weakness everywhere - phones, tablets, services, ad revenues - and it would be unwise to think that weakness won't carry over elsewhere. The big retailers have already warned about revenues and persistently high inflation will keep putting the pressure on consumers to dial back their spending elsewhere.

That means I'm leaning more defensive in November. High yielders have shown some resilience throughout this year and managed to still outperform other dividend payers despite declining stock prices, but I think a tilt towards quality and low volatility might pay, well, bigger dividends in the coming month. I'm not crazy about international equities during the last two months of the year either. They've struggled to gain momentum for a long time and I don't see the catalyst that suddenly propels them into leadership.

With that in mind, here are my dividend ETF picks for November.

ProShares S&P 500 Dividend Aristocrats ETF (NOBL)

As far as conservative equity picks go, you're probably not going to find an ETF that fits the bill much more than NOBL. Of course, it invests exclusively in S&P 500 companies with at least a 25-year track record of consecutive annual dividend growth. On top of that, it equal weights the 60 or so names that qualify, adding another degree of diversification risk mitigation. Ideally, I look a little more favorably upon funds that take a bit more of a forward-looking approach instead of a backwards-only view, but the dividends here are pretty secure and there's enough diversification to limit any idiosyncratic risk.

NOBL only has 11% of assets invested in the combination of consumer discretionary and tech stocks, so there's very little in the way of growth exposure. That's a good thing because these two sectors are very out of favor at the moment and I don't see that changing in November. There is, on the other hand, a lot of consumer staples, healthcare and industrial names. The value and low volatility tilts should play well as recessionary risks grow.

FlexShares Quality Dividend Index ETF (QDF)

QDF is a bit of a riskier play, but the quality approach to security selection helps minimize any excessive risks. This fund takes the pool of dividend-paying stocks and analyzes them using metrics, such as management efficiency, profitability and cash flows. A dividend quality score is assigned with only the highest making the cut. From there, the portfolio is optimized to produce an above market yield with market-like risk.

As the global economy continues to deteriorate, focusing on stocks with healthy balance sheets and cash flows is going to be critical. The market has been shunning anything speculative or unprofitable and, while that didn't necessarily impact investors in October, it could have consequences as we close out the month. Tech makes up nearly 30% of QDF's portfolio, so there is some concern there, but I do think the quality tilt will play well.

WisdomTree U.S. Quality Dividend Growth ETF (DGRW)

DGRW might be the perfect balance between growth and quality within the dividend stock universe. It compiles a universe of mostly large- and mid-cap dividend payers that demonstrate the best combination of quality, measured by return on assets and return on equity, and growth, measured by long-term earnings growth expectations. Qualifying components are then weighted by aggregate cash dividends paid to shareholders.

There's a lot to like about a fund, such as DGRW, in this type of environment. It looks at several metrics to help ensure the company is well-positioned to weather any economic storm, while the cash dividends paid methodology of weighting the portfolio ensures that companies with the greatest ability to pay their dividends receive higher weightings in the portfolio. Tech, healthcare, consumer staples and industrials all receive weightings of 18-20% of the portfolio, so there's a nice balance between growth, defensive and cyclical assets.

Capital Group Dividend Value ETF (CGDV)

CGDV is part of Capital Group's active fund lineup that was just launched earlier this year. It invests in a broad group of large-cap dividend-paying stocks that collectively generate an above average yield while offering the opportunity for long-term growth of capital. It tilts a little more value than growth, so there is some positioning that I think will serve the fund well. It's heavily into mega-caps, however, and that's a group that has struggled a bit, as evidenced by the walloping most of the FAAMG names took recently.

If you scan through the top holdings, you see names, such as Microsoft, Philip Morris, Raytheon, Abbott Labs and UnitedHealth Group. These are some of the economy's stodgier and more mature names that should hold up relatively well if the market begins pulling back again. If October's rally is more of a bear market bounce, which I suspect it is, these companies are big cash generators with built-in consumer demand. The active management aspect of CGDV could really pay off in this environment.

Pacer Global Cash Cows Dividend ETF (GCOW)

Pacer gets most of the attention with the Pacer Cash Cows 100 ETF (COWZ), but GCOW has had quite a year in its own right. The high free cash flow yield strategy that Pacer uses in several of its funds has a terrific long-term track record, but it's been years since it really paid off. When investors focus almost entirely on large-cap tech and growth, it's tough for more defensive, quality-oriented strategies to break through.

But break through they did in 2022. They've outperformed the S&P 500 by a wide margin this year and GCOW has shown up near the top of my monthly top dividend ETF performers lists multiple times. The 75-80% asset allocation to non-U.S. companies hasn't necessarily helped this year, but the focus on strong cash flow generators has been exactly what investors have wanted this year. The free cash flow yield strategy shouldn't just be a one-year wonder thing either. This could be an ideal long-term portfolio holding with a current yield of more than 6% and a P/E ratio of just 7.

ETF Battles: It's VYM vs. SCHD vs. SDIV. Which Dividend ETF is Best?

David Dierking — Wed, 26 Oct 2022 15:44:55 GMT

In this episode, it's a matchup of high dividend yield ETFs from Vanguard, Schwab and Global X. Which one is the better choice for investors?

Note: If you're a frequent follower or reader of this site, you know that I often post ETF Guide's "ETF Battles" web series episodes. They've always included a roster of high level judges to assess and measure the ETFs featured, which is why I was excited to be invited to participate in ETF Battles as a judge!

If you've ever wondered what I sound like in person, here's your chance! My thanks to Ron and ETF Guide for feeling that I'm qualified to appear on their show!

And there will be more to come soon in the future!

**********

Note: I'm excited to be partnering with ETF Guide to bring you their weekly web series, "ETF Battles".

ETF Guide founder, Ron DeLegge, explains that in a typical "battle", "each fund is judged against the other in key categories like cost, exposure strategy, performance and a mystery category."

Two industry experts are brought in to debate the ETFs and eventually declare a winner.

For financial professionals and active traders, ETF Guide offers premium research, including ETF trade alerts via text message delivered straight to your mobile device. They also offer a full suite of online financial education courses and, for ETF sponsors, customized research services, product education, and back-end marketing support.

Be sure to check out links to both ETF Guide and the judges down below! Enjoy the battle!

In this episode of ETF Battles, Ron DeLegge @ETFguide referees an audience requested duel between dividend stock ETFs - the Schwab U.S. Dividend Equity ETF (SCHD), the Global X SuperDividend ETF (SDIV) and the Vanguard High Dividend Yield ETF (VYM). Which dividend ETF is the better choice for investors?

Program judges Dave Nadig with VettaFi and John Davi with Astoria Portfolio Advisors examine this audience requested ETF matchup.

Each ETF is judged against the other in key categories like cost, exposure strategy, performance, yield and a mystery category. Find out who wins the battle!

*******

ETF Battles is sponsored by Direxion Investments

Direxion Daily Leveraged & Inverse ETFs. Know the risks. Proceed Boldly.

Visit http://www.Direxion.com

*******

CONTENT OF THIS VIDEO

0:00 Show starts here

0:40 Which ETF Battles do you wanna see?

1:04 Visit our viewer resources section

1:15 ETF Battle matchups

1:50 Judges introduced

2:05 Battle categories introduced

2:43 ETF Cost comparison

3:38 Exposure strategy analysis

5:55 ETF Performance & yield comparison

8:26 Mystery category analysis

10:24 Judges recap their ETF winner

11:27 Final ETF Battle scorecard

13:00 Visit our viewer resources section

13:08 Which ETF Battles do you wanna see?

13:20 Show conclusion

*******

Get in touch with our judges Dave Nadig (VettaFi) https://www.etftrends.com/author/dave...

John Davi (Astoria Portfolio Advisors) https://www.astoriaadvisors.com/

*******

YOUR RESOURCES FROM RON

Margin of Safety tool: Join our waiting list http://tinyurl.com/muhwcy7s

Get Ron's weekly newsletter https://tinyurl.com/2p8bxy82

Free ETF Guides https://tinyurl.com/4uvfx4m7

Get feedback on your portfolio's performance https://tinyurl.com/cz4ahj52

Get your ETF Battles gear here: https://tinyurl.com/27uj6hmv

#dividend #investing #etf

Best Ultra Short-Term Bond ETFs (Updated October 2022)

David Dierking — Tue, 25 Oct 2022 18:20:58 GMT

Low duration bond ETFs have drawn billions of dollars despite the historic bear market in fixed income.

For most income investors, 2022 has been a year they'd like to forget. Not only has it been a bad year, it's been historically bad. The iShares 20+ Year Treasury Bond ETF (TLT) is down 36% year-to-date. This quote might sum it up best.

This year is the most devastating period for bonds since at least 1926, the numbers show. And, in the estimation of one bond maven, 2022 is shaping up to be the worst year for bonds since reliable record-keeping began in the late 18th century.

Ouch! If it wasn't bad enough that fixed income investors had to deal with years of 1% yields, now they've been forced to watch the absolute decimation of their bond portfolios on top of it. It's probably been the worst bond market in financial markets history. On top of that, the Fed is still raising interest rates and those miserable returns might actually get worse before the year is through.

Investors haven't abandoned fixed income ETFs though. On the contrary, this group has attracted more than $137 billion in net inflows year-to-date. That's not necessarily as surprising as it might sounds since ETFs have been seeing hundreds of billions of dollars of inflows for several years now and this is just a byproduct of regular saving and investing. Plus, it's not like stocks are providing any kind of attractive alternative.

Where that money is going, however, has shifted. While there is money still going into all durations of fixed income, the largest relative flows are going to ultra short-term bond ETFs. In fact, this group just had its best month of inflows and it's not even close.

Ultra Short-Term Bond Flows by Month (source: ETF Action)

To give you a sense of how much interest has been generated by ultra short-term bond ETFs, they account for just 8% of all bond ETF assets, but more than 27% of net flows this year. Investors are still putting their money into fixed income, but they're favoring doing it in the most conservative way possible.

When you think of ultra short-term bonds, you should think of things, such as Treasury bills, floating rate notes or any other bond that has a remaining maturity of one year or less. The durations of these funds are typically anywhere from 0.5 to 1 years, meaning that for every 1% increase in interest rates, they can be expected to decline in value by 0.5% to 1%. Floating rate funds may have a duration next to zero. From a risk perspective, these are about the least volatile bond products you can find.

I think these ETFs can be ideal as cash alternatives in a portfolio. They're not money market funds, but they're just one step above them. For comparison's sake, the Vanguard Federal Money Market Fund (VMFXX) yields about 2.8%, but the Vanguard Ultra-Short Bond ETF (VUSB), which we'll see on this list in a minute, yields 4.2%. In my opinion, that yield boost is more than worth the modest bit of extra risk you take from going this route.

Ranking The Ultra Short-Term Bond ETFs

Methodology & Factors For Ranking ETFs

Before we dive in, let's establish a few ground rules.

Second, let's run down the factors I used in the ranking methodology.

Expense Ratio - This is perhaps the most important factor since it's the one thing investors can control. If you choose a fund that charges 0.1% per year over a fund that charges 1%, you're automatically coming out ahead by 0.9% annually. You can't control what a fund returns, but you can control what you pay for the portfolio. Lower expense ratios equal more money in your pocket.
Spreads - This relates to how cheaply you can buy and sell shares. Generally speaking, the larger the fund, the lower the spreads. Bigger funds usually have many buyers and sellers. Therefore, it's easier to find shares to transact and that makes them cheaper to trade. On the other hand, small funds tend to trade fewer shares and investors often need to pay a premium to buy and sell. Considering expense ratios and spreads together usually give you a better idea of the total cost of ownership.
Diversification - Generally speaking, the broader a portfolio is, the better chance it has at reducing overall risk. A fund, such as the Energy Select Sector SPDR ETF (XLE), provides a good example. 45% of the fund's total assets go to just two stocks - ExxonMobil and Chevron. By buying XLE, you're putting a lot of faith in just those two companies. An equal-weighted fund, such as the Invesco S&P 500 Equal Weight Energy ETF (RYE), would score higher on diversification than XLE.
FactSet ETF Scores - FactSet calculates its own proprietary ETF ranking for efficiency, tradeability and fit. They basically are designed to tell us if an ETF is doing what it sets out to do. I'm not going to copy and paste that work that they're doing, but there is some influence there to make sure my rankings are on the right path.

There are a few other minor factors thrown into the mix, but these are the main factors considered.

I'm ranking ETFs based on more basic structural factors. Are they cheap to own? Are they liquid? Do they minimize trading costs? Do they maintain risk-reducing diversification benefits?

Best Ultra Short-Term Bond ETF Rankings

With two dozen different ETFs falling into this category, these rankings look almost entirely based on the expense ratio. Within this group, there are three heavyweights and several others maintaining $1 billion+ asset bases.

Let's talk those big three first - the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL), the iShares Short Treasury Bond ETF (SHV) and the JPMorgan Ultra-Short Income ETF (JPST).

BIL is pretty much a straight T-Bill ETF. It's 100% government securities with maturities between 1-3 monthsshy etf. It's about as safe a fixed income ETF as you'll find out there. SHV is a minor step up from BIL. It invests in Treasuries with remaining maturities of less than a year, so interest rate risk is a bit higher, but not so much that you see a significantly different risk profile. JPST is more of a "go anywhere" bond ETF, but it typically focuses on investment-grade corporate bonds with a tilt towards financials. It'll also dip down into bonds rated as low as BBB, so the risk profile is definitely different. Interest rate risk is modestly higher and you begin introducing credit quality risk to the equation.

Of the three, SHV may be the better choice for this moment at least. It yields 0.5% more than BIL with very little additional risk. I hesitate with JPST because there's no real yield advantage, but it does come with higher risk. Plus, credit risk hasn't really been priced into the bond market. It's all been a broad shift higher in the entire yield curve. Once credit spreads increase, corporate bond ETFs, such as JPST, could underperform.

The #1 spot in these rankings goes to the iShares 0-3 Month Treasury Bond ETF (SGOV), which is basically BlackRock's answer to BIL. Undercutting on price with its expense ratio that's only about 1/3 that of BIL's helps push it up to the top. With $5 billion in assets, it's more than liquid enough to keep trading costs next to nothing.

The ETF coming in at #2 is a bit of an upset - the BondBloxx Bloomberg Six Month Target Duration U.S. Treasury ETF (XHLF). BondBloxx debuted its first ETFs only in February of this year, a suite of sector-focused high yield bond ETFs. It followed up with another suite of high yield bond ETFs targeting specific credit ratings. XHLF is part of the issuer's latest group of bond ETFs investing in very specific durations of U.S. Treasuries. This latter group is particularly interesting because they all come with expense ratios of 0.08% or less. XHLF is the cheapest of the bunch at 0.03%, the primary factor that puts it near the top of the list. The relatively tiny asset base usually results in higher trading costs, something that will impact ETFs negatively in these rankings, but spreads are already surprisingly tight.

Elsewhere, the U.S. Treasury 3 Month Bill ETF (TBIL) is a single bond ETF that holds just the most recent 3-month T-Bill issue. It'll hold that bond until the next 3-month T-Bill gets issued, at which time the fund will roll forward to the new note. TBIL is designed to maintain a very specific tenor as opposed to many bond ETFs that target a range of maturities.

Vanguard usually lands near the top of most ETF ranking categories based on their low fee offerings and this one is no exception. The Vanguard Ultra-Short Bond ETF (VUSB) lands at #5. VUSB is Vanguard's first actively-managed bond ETF and invests primarily in investment-grade corporate bonds. Like JPST, it's exposed to credit quality risk and does have about 1/3 of the portfolio dedicated to BBB-rated bonds. Risk is a little higher here, about 50% more volatility than JPST based on credit ratings and durations.

The Fed Pivot Is A Myth, But The Markets Might Rally Anyway

David Dierking — Mon, 24 Oct 2022 18:46:58 GMT

Stocks could be setting up for a repeat of the summer rally.

Stocks staged a big comeback last week following a first half of October that was largely forgettable. Some better than expected earnings results from the big banks kicked off the week, but Friday’s rally was inspired by something entirely different.

S&P 500 Performance

On Friday, the Wall Street Journal published an article that said the Fed was planning on raising by 75 basis points at its November meeting, but would discuss the “pace of tightening” starting with the December meeting. Two months of bearishness left investors searching for any reason to be optimistic again and this article provided it.

Now, we’re back to dealing with a very familiar narrative: The Fed pivot rally.

Why Is It Important?

This is the same phenomenon that happened this past summer. Investors believed that the economy was slowing significantly enough that the Fed was going to be forced to abandon (or at least slow) its rate hiking cycle to try to avoid recession. The thing is that this was never backed by anything concrete. The Fed never gave any indication that it was preparing to pivot, but investors talked themselves into the idea that it could happen.

It was enough to push the S&P 500 higher by 17% from June to August. Not surprisingly, it didn’t last because Powell decided to make it abundantly clear that the Fed was going to continue raising until inflation got under control. Within two months, the bear market rally was dead and the equity markets pushed to new lows.

S&P 500 Fed Pivot Rally

Now, the same scenario is playing out again. This time, it’s based on an article centered around a supposed leak from inside the central bank. There may be a hint of truth to it this time around, but I think there’s one thing to be very clear about.

Going From 75 Basis Point Hikes To 50 Basis Point Hikes Isn’t A Pivot

I can understand that investors are looking for any reason to be positive after a year that has delivered huge losses in both stocks and Treasuries. An easing of the rate hiking cycle would be one such reason because it could signal that we’re getting closer to the end of this misery, but Friday’s rally seems like a bit of an overreaction.

First, the market has been pricing in a 75 basis point hike in November and a 50 basis point move in December for much of the past quarter. It was only recently following a hot September inflation report that expectations shifted to the possibility of 75 in December as well. After the WSJ article, we’re effectively back to the point where we were a month ago. Only this time, investors are viewing it differently.

I think the real pivot comes when the Fed indicates an end to the rate hiking cycle. Not even a rate cut, but a pause. It can’t just be an unsourced quote that uses phrases like “reevaluate”. It needs to be something more concrete, something that the Fed has consistently failed to give up until this point. I think the real pivot still may not come for another couple months, but it almost certainly did not come last week.

Still, Stocks Could Rally Here

Here’s the good news for investors. Just because this likely isn’t “the” pivot doesn’t mean stocks can’t move higher on the BELIEF that it’s “the” pivot.

Like we saw this past summer, investors simply bought into the idea that because the economic data was getting worse, the Fed wouldn’t risk tightening so far that it resulted in a recession. That belief turned out to be false, but it lingered long enough that stocks were able to rally on it.

The same thing could happen here in October, although I think Powell might be quicker to swat down the idea than he was last time. If the central bank’s goal is to squash inflation by any means necessary, he probably doesn’t want to risk a repeat that adds volatility to the equity markets. Maybe I’m giving the Fed too much credit for giving this scenario that much thought, but Powell has taken a much more firmly hawkish stance over the past few months. He could do so again.

The Fed’s next rate decision gets announced on Wednesday, November 2nd, so there may not be much of a window of opportunity. If Powell does, however, reiterate the “pace of tightening” comments hinted at in the WSJ article, it could give stocks a reason to extend the rally further as we head into the end of the year.

I don’t think the idea of a Fed pivot right now is a smart reason to buy stocks, but I have to acknowledge that a rally could very well happen anyway if enough investors believe it.

ETF Sector Review

S&P 500 Sector Technicals Report

Stocks were able to take advantage of a string of better than expected earnings along with the WSJ article to stage one of the best weekly rallies in recent memory. One of the things it did was ignite the tech sector again, one area of the market that has been consistently lagging for months. If the Fed pivot narrative does have legs, expect tech stocks to be one of the biggest beneficiaries. Just last week, semiconductors, software, cybersecurity and autonomous vehicle stocks all added around 7%. Growth has ceded leadership to value for sometime now and this could be the catalyst that brings growth back into the lead.

On the flip side, defensive sectors, which have been market stalwarts throughout 2022, have turned into the biggest short-term underperformers. Utilities continue to get hit really hard as some of its excessive valuations get unwound. After setting new highs not that long ago, the sector is almost in bear market territory today. Consumer staples, healthcare, dividend and low volatility stocks have all experienced similar struggles, but I think the longer-term case for market outperformance remains intact.

Retirement Strategy: If The 60/40 Portfolio Is Broken, What Is The Replacement For Bonds?

David Dierking — Tue, 18 Oct 2022 13:30:00 GMT

The fixed income market has been historically rough for retirees, but there are some intriguing alternatives to consider.

You've been working for decades. You've been saving diligently all that time. You're either in retirement or nearing it and you're finally ready to leverage that nest egg to enjoy your golden years!

And then 2022 happens.

It's one of the worst possible outcomes - a major market decline right when you need to begin accessing the money. The equity portion of your portfolio, if it's invested in the S&P 500 (SPY), has fallen by a bit over 20%. Those returns are bad enough, but you've taken a risk-managed approach and utilized the old-fashioned 60/40 portfolio.

This is exactly why you have bonds in your portfolio - to mitigate overall portfolio risk and own an asset that historically rises in value when stocks decline. You should still be in fairly decent shape, right?

Not in 2022.

Thanks to high inflation and an aggressive Fed, bonds have done even worse! Long-term Treasuries (TLT) are down 30%! The one segment of your portfolio that was supposed to help save it when conditions got rough has made it even worse.

Death of the 60/40 Portfolio

This is the dilemma that income investors face today. Nobody complained about the "40" part of the 60/40 portfolio when 30-year Treasury rates were falling from around 15% in the early 1980s to sub-2% roughly 40 years later. That was the time when investors were able to earn solid returns from both sleeves of their portfolio - stocks and bonds.

Those days, however, have gone. When the 30-year Treasury bond bottomed out at 1% in March 2020, it did two things. First, it eliminated the ability of income seekers to obtain anything resembling a reasonable yield from bonds. Second, it virtually exhausted any opportunity for investors to see share price gains from falling interest rates.

Effectively, every drop was squeezed out of the fixed income turnip and returns had almost no choice but to turn negative. Interest rates had nowhere to go but up! It only took the highest inflation rate in 50 years and a Federal Reserve that was way too slow to respond to combine to create one of the worst environments for bonds in history.

If you're a retiree and you were relying on bonds to provide at least some income, you've no doubt already been dealing with razor thin yields for years. Now you've got crashing bond prices to add to your misery.

If The 60/40 Portfolio Is Broken, What Is The Replacement For Bonds?

It raises a very important question - is the 60/40 portfolio truly dead?

You'll hear a lot of people answer this question with yes, but I'm going to say no. It's probably more accurate to say that the opportunity for the 60/40 portfolio to experience success is much more narrow today than at maybe any point over the past 40 years. However, I believe the core principle behind the 60/40 portfolio still works. Creating a portfolio that balances the growth potential of equities with the defensiveness and income of bonds still makes sense.

But it is worth asking if bonds are still the appropriate thing to be using for the "40" in the 60/40 portfolio.

Replacement Options For Bonds In A Retirement Portfolio

As you've probably already guessed, I'm an ETF investor. With 3,000 different ETFs to choose from here in the United States, there's an investment option for almost every factor, theme, region, style or corner of the market you can think to put your money in.

That's a great thing for you if you're looking for alternatives to replace traditional fixed income within your portfolio. Be aware, though, that some of the ETFs I'm about to mention won't look anything like traditional bonds or bond funds. They're probably better categorized as income alternatives. They'll generate yield (or, in some cases, high yield), but you'll want to closely examine their risk/reward profile before diving in. Reaching for an 8% yield is fine, but if it's more volatile than you're prepared for and has more downside potential than you're comfortable with, have you really come out ahead in the end?

I've come up with five alternative ideas to consider for the "40" in a 60/40 portfolio. To be fair, I keep mentioning the 60/40 portfolio as a proxy since it's been the benchmark for portfolio construction for so long, but these options I'm about to discuss could be used regardless of how big the income component of your nest egg is.

Buy Treasuries

OK, I realize how silly it must sound to suggest the very asset class that has plummeted in 2022 and is the source of your income angst in the first place, but hear me out.

Treasuries were a rotten deal at 1%. With a 4% yield, it's a different story. Here's the case for re-considering Treasuries in your portfolio. Let's start with short-term bonds.

One year ago at this time, a 2-year Treasury note yielded just 0.3%. Today, that number is 4.3%. If we ignore for a moment at what's happened over the past year and look at short-term Treasuries from this point forward, getting a 4% yield on an ETF that's 100% AAA-rated and has a duration of less than two years is a pretty good deal. This is the highest yield on this type of bond in the last 15 years and investors would be wise not to simplify dismiss it out of hand.

The ETF to consider here is the iShares 1-3 Year Treasury Bond ETF (SHY).

iShares 1-3 Year Treasury Bond ETF (SHY)

For those unfamiliar with the term "duration", it's essentially a measure of interest rate sensitivity. In theory, an ETF with a duration of two years could be expected to decline in value by 2% for every 1% increase in interest rates. A lower duration means it's more conservative. A higher duration means it's more volatile. Treasury bills might have a duration of nearly 0. Long-term Treasury bonds could come with durations of around 20 years.

I like to look at a fund's yield-to-duration ratio, especially in rising rate environments. It's only one measure of risk (it doesn't consider the credit risk of corporate or junk bonds), but it does give a sense of how adverse conditions could get before investors start looking at losses.

With a current yield of around 4% and a duration of 1.8 years, that means (in theory) interest rates could rise by another 200 basis points before investor returns dropped to 0% over the next 12 months (e.g. 4% yield earned minus 4% share price loss due to higher interest rates). Are yields in this group about to rise to 6% by the end of 2023? It's possible I suppose, but nobody I know is projecting it. In fact, I think it's more likely that yields go down over the next 12 months.

A 4% yield plus the opportunity for modest share price gains from a low-risk Treasury bond ETF? Sounds like a pretty good deal to me for income seekers!

Now, how about the home run swing? I'd be looking at the iShares 20+ Year Treasury Bond ETF (TLT).

iShares 20+ Year Treasury Bond ETF (TLT)

It's the same concept as above except the duration here is 18 years. That means if interest rates rise another 1%, TLT could be expected to fall by about 18%. Just take a look at a chart over the past 12 months to see what that's like.

It's also yielding around 4% right now, so the income component is nice, but it's more of a pure bet on falling interest rates. Again, I think that interest rates will fall over the next 12 months. Within six months or so, the Fed will probably be finished with its rate hiking cycle and then its attention will turn towards recession risk. With inflation (in theory) coming under control, the Fed can start cutting rates again to kick start the recovery. Even if it doesn't, investors will likely flee towards the safety of Treasuries again feeling as if the Fed will no longer get in their way.

This is a much riskier bet, although one that could pay off bigger. If you're looking for more of a pure income option, SHY is the better choice. Rates may not have yet peaked since the Fed is still hiking, but a low-risk return in the neighborhood of 3-4% seems reasonable.

Buy Interest Rate Risk Hedges

This is a bit of a cheat since it's not really an income-producing alternative. It's simply a portfolio hedge in case rates keep rising.

This is something that's really only a short-term fix for the current market. Since stocks and bonds tend to usually move in opposite directions, securities that move higher when bond prices are falling would, therefore, have a positive correlation with stocks. Under more normal market conditions, that means 100% of your portfolio would, in theory, be moving in the same direction. That's pretty much the opposite of what a diversified 60/40 portfolio is supposed to do.

But, these are unusual times. And when stocks and bonds are falling together to a degree that we really haven't seen in the past 100 years, it might call for unusual measures.

One of the better interest rate hedge vehicles out there right now is the Simplify Interest Rate Hedge ETF (PFIX).

Simplify Interest Rate Hedge ETF (PFIX)

PFIX started the year with about $116 million in assets, pretty good for an ETF that has a very niche appeal. Today, that number is over $360 million. Investors are clearly seeking out bond market hedges right now, although a 90% year-to-date is not doubt appealing to performance chasers as well.

PFIX invests holds a portfolio of interest rate options contracts and is intended to provide direct exposure to large moves in interest rates. Simplify notes that owning PFIX is "functionally similar to owning a position in long-dated put options on 20-year US Treasury bonds".

Again, this should be considered only for a short-term holding period. As long as stocks and bonds continue to move in the same direction, PFIX should be an ideal risk hedge and a good way to at least temporarily return to the sanity of a traditional stock/bond mix, at least from an asset correlation standpoint. Once bonds begin to behave normally again i.e. as a safe haven asset for volatile markets, it's probably wise to exit the position and return to something like Treasuries.

Buy Synthetic Equity Income ETFs

Among the high yield seeking investor universe, the JPMorgan Equity Premium Income ETF (JEPI) and the Nationwide Nasdaq 100 Risk-Managed Income ETF (NUSI) are well-known. They're not traditional income-producing ETFs, however. By combining an underlying equity portfolio with an options contract strategy, they are able to deliver broader equity exposure and a (really) high yield.

These setups are important to understand before you jump in. Investing in either of these isn't as simple as getting a full investment in an index or equity portfolio with a double-digit yield to boot. The options overlay strategies impact the risk/return profiles of these ETFs. There's always a tradeoff involved and those high yields can come with a price.

First, JEPI is a fund that has only been around for a little over two years, but has proven incredibly popular with investors. It has just over $13 billion in assets and, yes, a current 12.5% yield.

JPMorgan Equity Premium Income ETF (JEPI)

JEPI starts by investing in a broad portfolio of around 100 low volatility stocks designed to have less overall volatility than the S&P 500. In addition to that, it can invest up to 20% of assets in what are known as equity-linked notes. The ELNs that JEPI invests in combine the characteristics of an S&P 500 investment with a written call option all in a single security. At a very high level, JEPI is a covered call ETF.

Covered call ETFs, however, come with a downside. In exchange for that high yield, the portfolio itself gives up a lot or, in some cases, all upside potential. This happens because if the underlying security price rises above the written option strike price, the holder will "call" the stock away. That means selling a stock at below market prices. There is a bit of downside protection though, usually be the performance of the underlying portfolio minus the extra yield earned. Think of it as narrowing the possible range of returns in exchange for a plus-sized yield.

Up until this year, with Treasuries yielding next to nothing and the S&P 500 not doing much better, JEPI became a popular alternative income option, but 2022 went to another level. Assets in the fund more than doubled even though stocks and bonds have tanked this year. JEPI is only down 11% year-to-date compared to a 24% loss for the S&P 500. The low volatility portfolio itself has outperformed the broader market and the high income was an added bonus.

It's important to note, however, that this is an equity fund, not a bond fund. Adding this as an income alternative turns a 60/40 portfolio into a 100/0 portfolio. On the plus side, JEPI is typically about 30-40% less volatile than the S&P 500, so there is a risk reduction advantage to be had, but it still has a correlation factor of more than 0.9 with the S&P 500. Essentially, the two move in lock step with each other.

NUSI uses a somewhat similar strategy, but adds options exposure on both ends of the investment.

Nationwide Nasdaq 100 Risk-Managed Income ETF (NUSI)

In the case of NUSI, the fund starts with a full replication of the Nasdaq 100. On top of that, it layers on a collar strategy - writing a call option to generate income and then using part of the income received to buy a protective put. Like JEPI, the strategy puts a cap on upside, but adds downside protection as well. The leftover net income from the trade goes to shareholders. The current yield on NUSI is approximately 8%.

Just like the warning I gave with JEPI, NUSI is an equity position and an aggressive one at that. The Nasdaq 100 as an income alternative is less than ideal as the replacement for the "40" in the 60/40 portfolio. In reality, it's probably better as an addition to an equity portfolio as opposed to a bond replacement, but it is an option for generating a high yield. NUSI also has sister ETFs using this strategy, but are based on the S&P 500, Russell 2000 and Dow 30.

In the case of both ETFs, they've managed to significantly outperform their underlying benchmark indices. JEPI has outperformed the S&P 500 by 11% year-to-date, while NUSI has beaten the Nasdaq 100 (QQQ) by 5%.

Another advantage is that both JEPI and NUSI pay monthly distributions.

Buy Covered Call Bond ETFs

This is a relatively new creation that I'm a little surprised hasn't launched before now. Covered call ETFs have existed for years, but those have been based on stocks. These new iShares ETFs write call options instead on bonds.

There are three in total, one for investment-grade corporate bonds and one for high yield corporate bonds, but the one I want to focus on is the iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (TLTW). Its underlying holding is TLT, the same ETF mentioned earlier, but adds on a series of one-month written call options to generate income.

iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (TLTW)

The options strategy has a couple of advantages.

First, the written options are approximately 2% out-of-the-money. Although it comes at the expense of less income earned, the further out of the money the option is, the less likely it is to be called away, increasing the chances the fund can simply capture the income with no impact to the underlying position.

Second, the written calls are European-style options. What does that mean? In most cases, options are American-style, meaning they can be exercised at any point up through the expiration date. European-style options can only be exercised at expiration. That's particularly attractive for this type of strategy because it takes a lot of volatility out of the equation. Volatility is the enemy of written options because it means more opportunity for it to fall in-the-money and be exercised by the buyer. With the European option, it only matters what it looks like at the finish line.

TLTW is only about two months old, so we don't have much data to work with. The two distributions that have been made thus far have been $0.64 and $0.56 per share. If we take those numbers and annualize them, that works out to a yield of around 20%!

I don't think I want to assume that this will be the annualized distribution rate going forward, but anything near it would be especially enticing. The Treasury market is experiencing one of its most volatile periods ever and high volatility does equate to high options premiums. It's entirely possible that this distribution rate continues, but I'd still be cautious at this point.

Perhaps the best part about TLTW, especially in relation to some of the other options on this list, is that it's a bond fund and thus an ideal fit into the 60/40 portfolio. When conditions normalize, this fund could resume being the safe haven asset that balances out the risks on the equity side of the portfolio. Even if conditions remain as they have throughout 2022, the high yield should help offset most, if not all, price declines that may occur.

Conclusion

There are, of course, lots of other income alternatives out there. Some will suggest REITs, but I'm not sure I want to be holding those heading into what surely looks like a housing market bust.

Perhaps long/short strategies, such as the AGFiQ U.S. Market Neutral Anti-Beta ETF (BTAL), could work? It's not really an income generator, but its long low vol/short high beta strategy has proven to deliver superior risk-adjusted returns and lower overall portfolio risk? That seems more like a complement to an equity portfolio as opposed to an income replacement.

There's no real good options if prices continue to decline, especially on the fixed income side, but I don't think we're going to be in that environment much longer. Bond prices are reacting to the Fed, not economic conditions like they usually do. Once the terminal Fed Funds rate is hit (or the Fed says we're nearing it), Treasuries should have permission to act like a risk-off asset again. That's why I'm actually getting bullish on government bonds even though we may not yet have reached the end of the rate hiking cycle. Long-term Treasuries at 4% sure look a lot better than long-term Treasuries at 1%.

I tend to favor TLT and TLTW on this list. TLT is kind of the home run swing based on the Fed pivot. SHY is the much more conservative option if you just want to focus on the income component (the 4% yields there look pretty attractive). TLTW is the (so far) really high income play, but still comes with the volatility of TLT.

People say the 60/40 portfolio is dead. I don't think it is, but expectations should be adjusted. A 40-year bond bull probably isn't coming again anytime soon, but the attractiveness of 4% yields on short duration Treasuries shouldn't be ignored. We will eventually exit this cycle and that's where I think the "40" can start to yield results again.

In the meantime, there are some worthwhile alternatives to consider.

Utilities Stocks Are On An Historically Bad Run; Haven't Done This In 20 Years

David Dierking — Sun, 16 Oct 2022 22:21:52 GMT

Utilities have taken a dive, but the conditions in which it's happened are highly unusual.

We've seen stock prices declining pretty steadily throughout 2022, but conservative equities have held up pretty well. Dividend growth, low volatility and consumer staples have limited losses and eased some of the pain of this unprecedented year.

One of the markets best performing sectors had been utilities. I say "had been" because that trend has made a remarkable reversal.

Utilities and S&P 500 Returns

The sector was up more than 10% on the year as recently as early September and was outperforming the S&P 500 by more than 25%. However, sentiment over the past three weeks within utilities has deteriorated mightily.

It's a bit curious. The typical environment where we see utilities do particularly well is during down markets. If stocks are falling, investors tend to move into the aforementioned conservative equity sectors as well as Treasuries. We know that Treasuries aren't working this year and that's helped explain why defensive equities have done so well.

But the past month has been an anomaly. Utilities are underperforming even as stock prices continue to fall. And not just by a little bit. By a lot! Over the past 15 trading days, utilities (XLU) has underperformed the S&P 500 (SPY) by more than 10%.

If you look back over the 24 years that XLU has been around, you can see that this has been a rare occurrence indeed.

Utilities and S&P 500 Returns

You probably wouldn't be surprised at the other times this has happened.

2001-2002: Tech bubble
2008-2009: Financial crisis
2015: Junk bond crisis
2018
2019
2022

But, again, utilities usually underperform the S&P 500 when conditions are bullish. After all, when stocks are running higher, investors don't want to be conservative. They want to be aggressive. In 2022, utilities are underperforming significantly even as the broader market is falling.

Since XLU debuted in 1998, this has only happened one other time. In 2002, during the tech bubble, utilities underperformed the S&P 500 by more than 10%, while the S&P 500 was down. That's it.

2022 has been one of the weirdest markets in history. Little anecdotes like this just make the year look weirder.

ETF Flows Show Investors Remain Defensive Despite Last Week's Rally

David Dierking — Sun, 09 Oct 2022 23:06:01 GMT

The majority of new money is still going into Treasury bills and floaters.

Last week, I talked about a roadmap for equities to stage a powerful rally. The catalyst, a government rescue of the bond market, never came to be, but stocks still delivered solid returns (albeit with a fair amount of volatility). Stocks were certainly due for a decent week after September resulted in a 9% loss for the S&P 500.

Is bullish sentiment back? ETF flows suggest that the answer is no.

Investors have been in a defensive mood for a little while now. Money has been flowing into all asset classes in 2022, which isn’t a surprise given how the ETF industry has grown over the past several years. Over the past three months, however, investors have shown a definite preference for fixed income ETFs and that trend has accelerated over the past month.

Last week, the S&P 500 gained 1.6%, small-caps outperformed and long-term Treasuries lost more than 1%. Despite that, investors still pushed hard into defensive assets.

ETF Net Flows

Equities drew in $5.7 billion in new money, but fixed income attracted $8 billion. Fixed income assets overall are less than 1/3 that of equities. That’s a huge gap that continues to grow even though bonds have performed just as poorly as stocks throughout this year. If you break that fixed income bucket down another level, however, it’s easier to see why investors don’t seem terribly risk-seeking at the moment.

ETF Net Flows

The ultra-short term category is where the action is happening. Bonds fall in this group based on their duration, so think T-bills and floating rate notes. These are your traditional defensive risk-off assets and they’re the best indication that investors are playing it safe at the moment.

To provide some perspective on the net flows moving into ultra-short term bond ETFs, September saw $13.7 billion go into these funds, the largest single-month inflow ever into this group. What’s more is the next closest month isn’t even close. The 2nd largest inflow was $8.7 billion, which occurred during March 2020, a time when conditions were pretty bearish in their own right.

This doesn’t necessarily mean that stocks are going to continue moving lower. During the COVID recession, investors piled into T-bills only to have equities stage a major comeback following the multi-trillion dollar government stimulus package. It does, however, suggest the lack of at least a certain degree of buying interest in stocks.

Another deeper dive down into the individual ETFs seeing the biggest inflows confirms where the money is going.

ETF Net Flows

Seeing the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) at the top of this list is pretty unusual. That spot is usually occupied by one of the major stocks ETFs, such as the SPDR S&P 500 ETF (SPY) or the Invesco QQQ ETF (QQQ). But it’s not alone here. In fact, far from it.

The iShares Short Treasury Bond ETF (SHV), the iShares 1-3 Year Treasury Bond ETF (SHY), the WisdomTree Floating Rate Treasury ETF (USFR), the iShares 0-3 Month Treasury Bond ETF (SGOV), the Vanguard Short-Term Treasury ETF (VGSH) and the iShares Treasury Floating Rate Bond ETF (TFLO) all focus on the same area. These are all cash alternative ETFs that eliminate almost all duration risk. The JPMorgan Ultra-Short Income ETF (JPST) essentially does the same thing, but invests in corporate notes.

Takeaway For The Week

ETF flows can be a bit of a lagging indicator, so these numbers could very well pivot back towards equities again soon. If risk asset prices, including stocks, junk bonds and international equities, continue drifting higher over the next 2-3 weeks, but ETF flows continue to show fixed income and ultra-short bonds doing well, it could be a sign that the rally doesn’t have legs.

Another category worth watching is long-term Treasuries. Not surprisingly, they’ve seen very little in the way of inflows in 2022 given that they’re down nearly 30% on the year. There has been a little more interest lately. I think if the Fed ever gives the signal that it’s ready to conclude its rate hiking program, Treasuries could be positioned for a strong rally. We’re not there yet, but it may happen around the end of the year.

Conclusion: Flows don’t show investors are bullish yet. Watch Treasuries for a rally in early 2023.

ETF Sector Technicals Report

On the equity side, there’s not much strength to be found anywhere. Energy stocks enjoyed a strong rally last week thanks to a steeper than expected production cut from OPEC. I’m not sure it’s sustainable, but it could accelerate a slowdown in global demand if prices at the pump begin moving higher again.

Defensive stocks are firmly out of favor, but that’s a trend that was developing even before this past week. Utilities have been historically bad over the past two weeks and REITs are finally reflecting the cratering real estate market.

The lack of any real progress from tech stocks could be a concern. This sector has usually been a market leader in broader risk-on moves, but it’s struggled to match the S&P 500 for more than a year. The Q3 earnings season is about to start and I think tech could be one of the hardest hit from potential earnings downgrades. The market may be sniffing some of that out here.

Best of luck this week!

Dave

Best Performing ETFs for September 2022

David Dierking — Tue, 04 Oct 2022 13:00:00 GMT

The month's biggest winners were the ETFs that invested in interest rate hedges, risk mitigation, currencies and commodities.

Even though the major U.S. equity indices were down about 9% in September, there were some ETFs that did well. Quite well, in fact. You probably won't be surprised to find out that the month's biggest gainers had nothing to do with equities at all. In fact, of September's top 15 performing non-leveraged ETFs, exactly zero of them invested in stocks. It's a unique group of winners from a very unique market environment!

There are some equity ETFs to be found that posted positive returns in September, but they mostly invest in precious metals miners. If you want an equity fund that invests in something more closely resembling a traditional equity portfolio, you'd have to go all the way down to #25 and the iShares Neuroscience & Healthcare ETF (IBRN). Needless to say, there was very little in traditional stocks or bonds that worked in September.

Best Performing ETFs for September 2022

The biggest winners were ETFs that invested in hedges, currencies and commodities. With interest rates continuing to soar as the Fed works to combat inflation, investments that are hedged against a stronger greenback performed quite well. Within international equity ETFs, those that hedged their exposure to the dollar outperformed their unhedged counterparts by about 4%. But those still weren't enough to offset the declines in stock prices. To capture larger positive returns, investors needed to invest in products that targeted one of two specific themes - rising interest rates and the rising dollar.

If you were prescient enough to see the rise in interest rates coming at the beginning of September, you could have captured 10%, 20% or even 30% returns! Even though I don't include VIX-linked futures ETPs in this list, any product that bet on rising volatility also did very well. When market conditions are favorable, investors often pursue the goal of return maximization. When things turn south, risk mitigation should take priority. September was perhaps the perfect example of why risk mitigation is important to consider in a broader portfolio strategy.

Here's the list of the best performing ETFs for September 2022.

Best Performing ETFs for September 2022

It's no surprise that three of the five best performing ETFs for the month involved interest rate hedges. The Simplify Interest Rate Hedge ETF (PFIX) is the biggest of the bunch at $360 million in assets. It simply invests in direct interest rate option contracts designed to move in sync with changes in the yield curve. The Global X Interest Rate Hedge ETF (IRHG) pursues a similar strategy, although its expense ratio comes is 5 basis points cheaper than PFIX. The Advocate Rising Rate Hedge ETF (RRH) takes a more expansive approach. It can invest in stocks, Treasuries, option contracts and interest rate derivatives, essentially anything that could have a positive correlation to rising interest rates. A little further down the list is the FolioBeyond Rising Rates ETF (RISR), which invests in more complex interest-only mortgage-backed securities (MBS IOs) and U.S. Treasury bonds.

The Simplify Tail Risk Strategy ETF (CYA) and the Cambria Global Tail Risk ETF (FAIL) are more pure risk hedges. CYA invests in a combination of equity index put contracts, interest rate hedges and currency exposures to protect against downside. FAIL is a little more basic in that it invests in out-of-the-money put options on global equity indices that are designed to profit when stocks go down. The Cambria Tail Risk ETF (TAIL), the U.S. market equivalent, also makes the top 30 list in September.

The other winning trade for September was simply the dollar, something that we rarely see except in environments where things are starting to break. The Invesco DB U.S. Dollar Bullish ETF (UUP) and the WisdomTree Bloomberg U.S. Dollar Bullish ETF (USDU), which shows up in the next graphic, have a combined $2.5 billion in assets, but the pair has drawn in more than $1.3 billion of that just in 2022. The dollar remains one of this year's most popular trades.

Best Performing ETFs for September 2022

Here's where all the precious metals miner ETFs show up. The VanEck Gold Miners ETF (GDX), which sneaks in right at the bottom of the list, is easily the largest with more than $9 billion in assets, but the others are large enough to remain tradeable and liquid. The iShares MSCI Global Silver & Metals Miners ETF (SLVP), the Global X Silver Miners ETF (SIL) and the ETFMG Prime Junior Silver Miners ETF (SILJ) all performed nearly identically. SILJ focuses on smaller miners, while SLVP has more large-cap and U.S. company exposure.

The AGFiQ U.S. Market Neutral Anti-Beta ETF (BTAL) and its long/short strategy has been one of this year's success stories. It goes long low beta stocks and short high beta ones, which means it will post positive returns whenever low volatility outperforms high beta. That's definitely happened this year and has led to a 14% year-to-date gain for BTAL. The fund started the year with around $100 million in assets, but has grown to more than $310 million today.

The only other non-miners equity ETF on the list is the Simplify Volt RoboCar Disruption & Tech ETF (VCAR). It's rather unique in that it takes very targeted and concentrated bets on just the handful of companies it believes will be winners in the autonomous driving space. The management team's anticipated big winner is Tesla (TSLA), so it's become the fund's top holding with a 11% target allocation split between a 6% equity position and a 5% call option position.

Best Performing Dividend ETFs For September 2022

David Dierking — Mon, 03 Oct 2022 16:33:51 GMT

Dividend ETFs weren't able to escape the stock market carnage, but there were several that held up pretty well.

September ended up turning out a whole lot like August. It was another month for steep losses in the equity markets with not a safe haven to be found, even in the traditionally defensive utilities sector. Not only is the Fed continuing to aggressively raise rates, but we're starting to see some of the larger systemic consequences that can come with yields soaring in such a short period of time.

Dividend ETFs didn't provide a lot of comfort either. Dividend growers and high yielders did just a little bit better than the broader market, but many were still down 8-9% on the month. The selling was very broad-based in September and that included both stocks and bonds.

One trend that we did see emerge in September was the return of international stocks. They didn't necessarily outperform to any major degree, but they have been matching the performance of the S&P 500 despite the surging dollar. A strong greenback works against foreign assets, so the fact that they're keeping pace with U.S. stocks with this headwind suggests they've actually been performing better on a currency-adjusted basis.

That's why we see a lot of currency-hedged dividend ETFs showing up at the top of the list in September. Those that were able to eliminate exposure to the dollar were able to add around 4% to their monthly performance compared to their unhedged counterparts. Amazingly, the fund that topped this month's dividend ETF best performer list, the WisdomTree Japan Hedged Small Cap Equity ETF (DXJS), was the same one that topped the list in August! Last month, it was one of just two dividend ETFs (it's sister fund, the WisdomTree Japan Hedged Equity ETF (DXJ), was the other) to post a positive return. It wasn't quite as fortunate in September, but its comparatively strong -1% return beat the developed market equity averages by more than 8%!

Here's the list of the best performing dividend ETFs for September 2022.

Best Performing Dividend ETFs for September 2022

Outside of DXJS and DXJ, the currency-hedged ETF list includes another trio from WisdomTree - the WisdomTree Europe Hedged Equity ETF (HEDJ), the WisdomTree International Hedged Quality Dividend Growth ETF (IHDG) and the WisdomTree Dynamic Currency Hedged International Equity ETF (DDWM). The latter can add or remove currency hedges depending on market conditions. In all, WisdomTree owns 7 of September's top 15 dividend ETF performers.

The Siren DIVCON Dividend Defender ETF (DFND) is a fund that greatly benefited from its long/short strategy. It maintains a 75% long position in companies it identifies as most likely to raise their dividends and a 25% short position in companies most likely to cut their dividends. Not surprisingly, the long/short nature of the portfolio means it's often on either the top or bottom performer list, but the fund has been able to outperform the S&P 500 by 3% year-to-date.

The USCF Dividend Income ETF (UDI) and the Freedom Day Dividend ETF (MBOX) are both actively-managed and use similar approaches. MBOX looks at things, such as dividend growth, dividend quality, positive momentum and operational advantage to create a final portfolio of 50 stocks. UDI also looks at similar fundamental characteristics, such as balance sheet quality and attractive valuations, but layers on an ESG screen as well.

Best Performing Dividend ETFs for September 2022

Here's where we start getting into some of the more familiar dividend ETF names. The Schwab U.S. Dividend Equity ETF (SCHD), the Vanguard High Dividend Yield ETF (VYM), the WisdomTree U.S. Quality Dividend Growth ETF (DGRW) and the WisdomTree U.S. High Dividend ETF (DHS) all rate highly on my ongoing dividend ETF rankings and are some of the largest dividend ETFs in the space.

There are more international dividend ETFs down in the second 15, including the iShares International Dividend Growth ETF (IGRO) and the Vanguard International Dividend Appreciation ETF (VIGI). Both are foreign equity versions of two very popular and highly rated funds - the iShares Core Dividend Growth ETF (DGRO) and the Vanguard Dividend Appreciation ETF (VIG). Both target longer-term dividend growers (VIGI's consecutive growth requirement is a bit more lax than VIG's).

Here's The Roadmap For A Big Rally In Equities This Week

David Dierking — Sun, 02 Oct 2022 21:36:38 GMT

Parts of the financial system are breaking, but some help from the Fed could turn things around.

Last week, investor concerns shifted from their focus on economic deterioration and inflation to a potential full-blown systemic failure.

A little over a week ago, new U.K. Liz Truss unveiled the government’s plans to enact sweeping tax cuts and fund spending with new borrowing. The plan was ill-conceived from the start and the result was soaring gilt yields and a cratering pound. Many of the nation’s pension plans are loaded up on long-dated government bonds, some of which use leverage to add to their exposure. High gilt yields triggered margin calls that some of these funds wouldn’t be able to meet. Enter the Bank of England, which suspended previous plans to wind down its balance sheet and began adding liquidity to the market through new bond purchases. It ended up driving yields back and helping the pound, but it unveiled some of the tail risks that are becoming very real in this system.

But that wasn’t it. Next up was the news that a “large European investment bank” was on the brink of collapse (most likely Credit Suisse, Deutsche Bank or both!). Anybody who follows the Euro banks knows that some of them have been over-leveraged and at risk of a Lehman moment for years now, but soaring rates could be the catalyst that finally sets it off.

The S&P 500 is down 24% on the year. Long-term Treasuries are down 30%. Investor sentiment is at historic lows. The market is almost universally oversold at this point.

S&P 500 Sector Technicals Report

Those conditions alone support the idea of a recovery rally coming this week, but there’s one other thing that could set things in motion.

The Fed Board of Governors is going to meet on Monday. Not to decide on interest rates, but to discuss lending rates.

Given events over the past week, I have a hard time believing they’re not going to at least discuss ways of supporting the bond market and financial institutions. The Bank of Japan has been instituting yield curve control for a while. The Bank of England has effectively done the same. I think the Fed will consider taking a similar path. That probably won’t mean the Fed will halt its plans to raise interest rates to combat inflation, but I think they could decide to suspend QT and instead stand ready to buy long-dated bonds. That would add liquidity to a market that’s seeing it dry up pretty quickly and help stabilize the bond market.

And that’s the recipe for a big time rally in both stocks and Treasuries. A lack of liquidity is perhaps the biggest risk facing the markets today. When you remove a significant risk (or at least mitigate it to some degree), that usually leads to buying in equities.

The Fed has been talking a tough game for a while. It wasn’t that long ago when Jerome Powell said that the central bank was going to allow some economic pain in order to bring inflation back down to earth. Now we’re starting to see that “economic pain” could mean something far worse than just a garden variety recession. Rising interest rates are creating a serious liquidity and credit crunch that could very well get even worse before it gets better. If the Fed is willing to raise interest rates another 100-150 basis points before it ends this rate hiking cycle, something breaking within the financial system is not at all outside the realm of possibility.

I suspect some U.S. financial institutions are at risk as we speak. If the government can intervene to save the the bond market, while the Fed continues to address inflation risk, I think they might do it.

If they do, it could be rally time for stocks.

Note: There won’t be an ETF market view this week. The ETF Action database I use for my analytics is undergoing an upgrade, which means I’ll be upgrading some of my reporting as well. The sector level reports will be returning very soon!

If You're Worried About Stocks, You Need To Look At Buffer ETFs

David Dierking — Sun, 25 Sep 2022 19:40:55 GMT

These ETFs are designed to provide much needed downside protection.

Last week, the S&P 500 fell more than 4%, the Russell 2000 declined by more than 6% and long-term Treasuries lost 1%. In fact, as I noted on Twitter this past Saturday, it was the 2nd consecutive week where the two equity indices fell by at least 4% and long-term Treasuries lost 1%. The only other time over the past two decades that this happened was earlier this year in June.

S&P 500, Russell 2000, Long-Term Treasuries Returns

It’s goes without saying that these are highly unusual times. The Fed is raising rates even more aggressively into a steadily deteriorating economy and that’s resulted in some hefty losses for both stocks and bonds. Both asset classes are down between 20-30% year-to-date.

S&P 500, Russell 2000, Nasdaq 100, Long-Term Treasuries Returns

In a garden variety recession, this is the area where stock prices tend to bottom out - losses in the 20-30% range. It’s in recessions that are the result of some type of tail risk event that we see declines in the 40-50% range. Think the financial crisis or tech bubble. The big question now is will history show that this is a typical recession or an unusual recession. My money is on the latter, but nobody knows for sure.

We do know that portfolio protection is rapidly on the rise. Put option volume on the S&P 500 this year is going vertical and investor sentiment is at historically bearish levels. If you’re a believer that the bottom isn’t yet in and there’s more downside ahead, it’s time to think of portfolio protection yourself.

For a lot of investors, this means selling everything and moving into cash. This tends to be the investing equivalent of taking care of an anthill with a stick of dynamite. It requires not only the investor be correct in predicting that prices will continue falling, but also the discipline to buy back in before prices rise again and be right there as well. If investors are inclined to sell everything during times like these, they’re probably not likely at all to buy back in when things get worse. This “sell low, buy high” emotional decision making behavior is what usually shoots people in the foot and explains why the average investor doesn’t see returns anywhere near the market averages.

That doesn’t mean, however, some type of portfolio protection can’t be used. Buffer ETFs have become all the rage since the first one - the Innovator Laddered Allocation Power Buffer ETF (BUFF) debuted six years ago. Since then, more than 150 additional buffer ETFs have launched consisting of nearly $17 billion in total assets.

The premise here is simple. The buffer ETF provides a pre-determined level of downside protection in exchange for a cap on upside potential. Those two levels are usually correlated - the higher the downside protection, the lower the upside potential and vice versa. It’s a good way to protect your portfolio while still maintaining upside potential in case the protection isn’t needed.

The catch is that you need to hold the fund for the entirety of the “outcome period” in order to fully capture the upside/downside range. You can’t just buy a buffer ETF at any time and assume because you bought it that you now have 15% downside protection on your portfolio. It only applies if you buy the fund at the beginning of the outcome period and hold it through the end of the outcome period. If you buy and sell in between, your range of returns may differ.

The outcome period is generally one year on most buffer ETFs. That’s why you see funds with names, such as the Innovator U.S. Equity Buffer ETF - July (BJUL). Issuers, such as Innovator, have expanded their lineups to include ETFs with outcome periods beginning every month of the year. You’re always no more than a few weeks away from being able to invest in a buffer ETF with a new outcome period.

Here’s an illustration from Innovator that explains the outcome profile of a buffer ETF.

Buffer ETF Return Profile

Notice that the buffer ETF offers protection from a pre-determined level of downside, but not all downside. Once the protection level has been reached, 15% downside for example, the ETF will capture losses beyond. In theory, if the market drops 30%, this buffer ETF, for example, would still fall 15% in value.

Buffer ETF Return Profile

Most of Innovator’s ETFs offer protection at three different levels - 9%, 15% and 30%. Their buffer ETF lineup includes funds based on large-caps, small-caps, developed markets, emerging markets, the Nasdaq and Treasuries. Similar products are offered by FT Cboe Vest, Pacer, Allianz and TrueShares.

Should buffer ETFs be part of the core of your portfolio? Probably not, although I think you could make a case for it. Over the long-term, the returns on stocks usually exceed the caps on these products (especially at the higher protection levels), so it may be more beneficial to go uncapped if you have years and years to invest.

But downside protection isn’t to be underestimated. I’ve personally heard multiple people, including family members and neighbors, complain about how much they’ve lost lately. That includes the ones who said they’re just a few years from retirement. If you’re in the latter boat, buffer ETFs would be a wise move. At that point, you should be focused on principal preservation, not return maximization. Being three years from retirement and 100% invested in stocks is just asking for trouble.

Buffer ETFs may not protect against all downside risk, but they can eliminate a good chunk of it. If you’ll sleep better at night knowing that your portfolio isn’t at quite as much risk despite very uncertain circumstances, adding a buffer ETF to your mix is well worth considering.

Here are the top 20 Innovator ETFs according to my latest ETF rankings, although the ETF you should pick depends on when you’re investing, which index you want to track and what level of protection you’re looking for.

Best Innovator ETFs

PORTFOLIO UPDATE: Sold QQQJ, SLV, GDX, ARKK; Bought TLT, BTAL

David Dierking — Thu, 22 Sep 2022 16:02:08 GMT

Last week, I trimmed some speculative positions and began adding to Treasuries again.

Ahead of this week's quarterly Fed meeting, I made a few trades to take some risk off the table and position my portfolio more defensively. Although we may not be in an actual recession yet, despite what GDP growth and unemployment numbers tell us, it certainly seems like we're heading in that direction.

I made six trades in all. None of them resulted in any major shift in my overall portfolio allocation (which is still roughly 90/10, although the 90 includes some long/short, hedge and rotation strategies). Here's my thought process behind each of them.

Sold iShares Silver ETF (SLV) & VanEck Gold Miners ETF (GDX)

Prior to this, I had exposure to gold, silver and gold miners. After this, I maintained my position in the iShares Gold ETF (GLD), halved my position in GDX and sold out of SLV altogether.

I'm disappointed like everyone else that gold hasn't responded better to the high inflation environment, but I think that, if nothing else, it makes an excellent risk hedge heading into what looks like the next recession.

Silver is really more of an industrial metal than a pure precious metal and will be more affected by cyclical developments. Because of this, I'm exiting silver for now, but I think there's still some value to be had in this asset class. This is one I'll monitor closely and be ready to buy again once the inflation outlook becomes a little clearer.

GDX is another ETF that has some good value as well, but ultimately this is a highly volatile asset class and I'm not sure I want a lot of volatility in my portfolio over the next six months. Cutting this position in half allows me to both reduce risk just a bit while maintaining some exposure to an attractively valued segment of the market.

Sold Invesco Nasdaq Next Gen 100 ETF (QQQJ)

I'm still a believer in the "bubbling under" Nasdaq names, but now's just not the right time. The backtest on this group, the 100 largest non-financial stocks outside of the Nasdaq 100, looks really good and I still think this is a good long-term holding. Growth has gotten hit hard already, but I think there's still a ways to go before we hit a bottom. I don't think tech will make a sustainable comeback until the Fed is ready to take its foot off the gas on interest rate policy. The August inflation report and recent Fed meeting show that we're still not near that point.

Sold ARK Innovation ETF (ARKK)

I dipped my toes back in the water on ARKK when it was down 50% from its highs thinking it was a much better entry point for a long-term holding. Clearly, I still got in much too early. I was willing to give this trade a little more leeway to move given its high volatility, but in hindsight I should have put in a stop at a much higher price than I ended up selling.

For the record, I still own my position in the ARK Fintech ETF (ARKF). In terms of returns, it's obviously still in the same boat as ARKK, but I'm a believer in where this industry is going long-term. Halving my position in ARK as a whole still gives me some exposure to the disruptive innovation trade even if it's not in favor right now.

Bought iShares 20+ Year Treasury Bond ETF (TLT)

Treasuries have been a miserable trade throughout 2022, but here's why I think the worst may be coming to an end. In the past, inflation data releases and Fed rate hikes were consistently met with selling in government bonds. The last few instances have seen a different reaction in long-term Treasuries.

Long-term yields didn't rise in the last two rate hike announcements. In fact, long-term Treasuries actually rallied this week following the hike. The hotter-than-expected inflation reading earlier this month also failed to elicit a big down move in Treasury bonds. Whereas Treasury yields responded almost exclusively to inflation and the Fed for most of 2022, I think long-term bonds are starting to react to recession risk as well.

In recessions, of course, Treasuries tend to rally. Investing in TLT offers the biggest upside potential in that scenario. It's still early and this trade has yet to pay off, but I think long-term yields end up at a much lower level a year from now. This may not be the bottom, but the risk/reward looks really attractive to me.

Bought AGFiQ U.S. Market Neutral Anti Beta ETF (BTAL)

For those not familiar, BTAL is an ETF that goes long low volatility stocks and shorts high beta. In essence, this fund produces gains whenever low vol outperforms high beta. BTAL is up 12% year-to-date as high beta has gotten slammed.

This is another recession trade, but on the equity side. This isn't just a safe haven trade like the TLT trade is. It's a chance to generate gains if stocks keep falling. For the record, BTAL is also a great ETF to pair with the S&P 500. Over history, a 75/25 split between SPY and BTAL has produced above average risk-adjusted returns.

PFIX: The Right Interest Rate Hedge Ahead Of The Fed's Rate Hike

David Dierking — Tue, 20 Sep 2022 18:27:55 GMT

Interest rates have moved steadily higher throughout 2022. It's time to hedge ahead of the next Fed move.

Fixed income investors continue to get blitzed as the Fed maintains its aggressive monetary tightening program. That's expected to take its next step this week when the central bank lifts the target Fed Funds rate by another 75 basis points, although a larger 100 basis point hike appears to be on the table as well.

That's meant a steady climb for interest rates all along the curve. Short-term yields have been particularly vulnerable. The 2-year Treasury yield, which is often considered a good proxy for Fed activity, is nearing the 4% level, a mark it hasn't reached since the financial crisis.

2-Year Treasury Yield

The rising rate environment is probably not over either. The Fed Funds rate is probably moving at least another 100 basis points higher even after this week's rate hike. Long-term Treasuries, which under normal circumstances respond more closely to economic conditions, are still pricing in Fed rate hikes instead. Treasury yields are not directly correlated with movements in the Fed Funds rate, but don't be surprised if they have a lot higher to go as well.

Time To Consider Interest Rate Hedges

If you haven't already, it's time to consider adding a rate hedge to your portfolio. I'm not talking about gold or TIPS or commodities. I'm talking about a literal interest rate hedge.

The Simplify Interest Rate Hedge ETF (PFIX) is simple in its strategy. According to the fund's website, it "holds a large position in over-the-counter (OTC) interest rate options intended to provide a direct and transparent convex exposure to large upward moves in interest rates and interest rate volatility." It's effectively a similar strategy to shorting long-term Treasury bonds, but uses a derivative probably less than intuitive to most retail investors and offers it to investors in a nice, neat ETF wrapper.

Simplify Interest Rate Hedge ETF (PFIX)

Since the beginning of the year, the 10-year Treasury yield has risen from around 1.6% to its current level just above 3.5%. That makes strategies that benefit from rising interest rates among the best and steadiest performers. In 2022, PFIX is the 3rd best-performing non-leveraged ETF, gaining nearly 70%. The only two funds it trails invest directly in natural gas futures contracts.

Investors have taken notice too. Over the past year, total assets under management have grown from $100 million to more than $320 million.

How To Use PFIX In Your Portfolio

Because interest rates tend to rise as inflation rises, PFIX can be used as an indirect inflation hedge as well. There's a chance that PFIX will actually work better as an inflation hedge than many ETFs that are specifically geared towards inflation hedging.

Take TIPS, for example. Their yields have certainly risen this year as inflation has risen, but they've also been a victim of the bear market in Treasuries. The -10% year-to-date return of the iShares TIPS Bond ETF (TIP) is only modestly better than the -12% return of the broader government bond market. I doubt that'll be much solace to investors.

ETFs that have focused on inflation-resistant sectors or securities have likewise had a rough go. Healthcare and financials tend to fit this bill, but they've had mixed results at best. Commodities-focused funds are another option, but they're highly volatile although the Invesco DB Commodity Tracking ETF (DBC) is up about 20%. PFIX may, however, be the most highly correlated asset to interest rate and inflationary pressures.

Outlook For PFIX In 2022

The bond market is acting as if the Fed will continue raising rates aggressively with no firm end date in sight. As long as that's the case, rates will probably keep drifting higher, which will be a good thing for PFIX.

The big question is when the rise will end. As soon as we get a hint that the rate hiking cycle is ending or inflation is decelerating in a more convincing fashion, it'll be the time to abandon PFIX. Those are both conditions that are likely to send interest rates falling again. A recession is another environment where interest rates tend to fall, usually significantly. In essence, the point in time where the Fed might have reason to pivot from hawkish to dovish (or even neutral) is the time to sell any position in PFIX.

But that time isn't yet. Rates will likely keep drifting higher through the end of the year before conditions have the potential of changing. As a short-term hedge heading into this week's Fed meeting, PFIX could be a good addition to your portfolio.

Don't Ignore Cash! Up To 3% Yields Now Available On Ultra-Short Term Bonds

David Dierking — Mon, 19 Sep 2022 13:00:00 GMT

Investors can capture a pretty nice dividend yield with relatively little risk.

For as much pain as the bond market has caused investors this year, it has created some decent yield opportunities for those looking to add to positions. It used to be that cash was trash because it yielded literally nothing. As recently as July 2020, even a 10-year Treasury bond yielded just 0.5%. There was income to be found almost nowhere.

The past year has been different. Soaring inflation and a Fed that’s lifted interest rates significantly higher have improved the yield environment quite a bit (although that’s come at the expense of tumbling bond prices). Today, 10-year Treasury yields are at their highest level in 11 years. The 2-year Treasury is at its highest in 15 years.

As I noted on Twitter last week, even money markets now offer (nearly) risk-free 2% yields.

Vanguard & Fidelity Money Market Yields

While that’s a good start for finally generating some yield on the spare cash in your portfolio, you can actually do better if you’re willing to venture just a bit further out on the risk spectrum. Ultra short-term bonds, which typically come with maturities of less than one year (think T-bills), you can push that 2% yield up to as much as 3%.

The big reason why these ETFs are so advantageous right now is their relatively limited interest rate risk. The majority of ultra-short bond ETFs have durations of 0.5 years or less. That would mean for every 100 basis point increase in interest rates, these funds could be expected to lose about 0.5% in value. That’s not an insignificant consideration since the Fed is expected to continue hiking rates over the next six months, but that pill is easier to swallow when you’re starting off with a much higher yield.

Of the 20 ultra short-term bonds in the ETF Action database, there are plenty of solid choices for investors. A lot of them seem pretty similar on the surface, but there are some differences that should be understood before choosing one ETF over another.

Below is the latest update of my ETF rankings in the ultra short-term bond ETF category followed by five ETFs that I’ll take a little deeper look at.

Ultra Short-Term Bond ETF Rankings

BlackRock Ultra Short-Term Bond ETF (ICSH)

30-day SEC yield: 2.71%

Here’s the #1 fund on the list thanks to one of the lowest expense ratios in this group. It’s actually an especially good deal because the fund is actively-managed mixing in a combination of fixed and floating rate notes, including corporates, CDs, commercial paper and a few other odds and ends.

ICSH is unique in that it’s got virtually zero Treasury exposure. That means you’ve got a little more exposure to credit risk. It’s only got a relatively modest 25% BBB-rated debt and that focus on higher rated notes could be especially advantageous if recessionary risks continue to build.

Vanguard Ultra-Short Bond ETF (VUSB)

30-day SEC yield: 3.42%

It’s a little unusual to see a Vanguard ETF not in the top 10 in any particular category, but this is one of the few. VUSB actually comes in at #12, but it does come with the trademark ultra-cheap expense ratio and is the highest yielder of the bunch at 3.4%.

VUSB comes with a duration of 0.9 years though, which means that higher yield comes with higher risk. Like ICSH, it has very little exposure to Treasuries and focuses almost exclusively on corporate issuers. Overall credit quality is slightly below average (although entirely within the investment-grade category), so this is a little more on the higher risk/higher reward end of the spectrum.

iShares 0-3 Month Treasury Bond ETF (SGOV)

30-day SEC yield: 2.19%

If VUSB is on the comparatively more aggressive end of the spectrum, SGOV is on the conservative end. It’s probably about as close as you’ll get to a traditional money market fund in terms of risk and volatility.

As the name suggests, this fund invests solely in ultra low duration Treasury bills. Because those bills have a remaining maturity of just a couple months, it’s among the most stable ETFs you’ll find available. That lack of risk, however, means a lower yield. The 2.2% yield is only a hair above what you’ll see in a money market.

JPMorgan Ultra-Short Income ETF (JPST)

30-day SEC yield: 2.88%

JPST is nearly the biggest ETF in this space and it’s easy to see why. Its active management has produced a 5-star rated portfolio, which consists mostly of short-term corporate bonds, but also a healthy dose of CDs, commercial paper and asset-backed securities.

JPST is perhaps the best combination of quality, yield and controlled interest rate risk. It’s got the vast majority of its portfolio in A-rated debt and better, including 23% of assets in AAA-rated bonds. Despite the high quality tilt and the relatively limited duration of 0.3 years, the fund’s 2.9% yield is attractive.

Goldman Sachs Access Treasury 0-1 Year ETF (GBIL)

30-day SEC yield: 2.44%

GBIL is the slightly longer-term version of SGOV by adding in 3-12 month maturities to the mix. Nearly half of the fund’s assets are in that 0-3 month bucket, so it’s not necessarily a significant step up in risk. You do get a bit of an extra yield boost, however, adding about 25 basis points annually to your pocketbook.

ETF Battles: Growth Stocks vs. S&P 500? It's Vanguard vs. State Street. Which Is The Better Choice For Stock Market Investors?

David Dierking — Thu, 15 Sep 2022 14:30:51 GMT

In this matchup, it's VOO vs. SPYG. How does the S&P 500 measure up against large-cap growth?

If you've ever wondered what I sound like in person, here's your chance! My thanks to Ron and ETF Guide for feeling that I'm qualified to appear on their show!

And there will be more to come soon in the future!

**********

Note: I'm excited to be partnering with ETF Guide to bring you their weekly web series, "ETF Battles".

ETF Guide founder, Ron DeLegge, explains that in a typical "battle", "each fund is judged against the other in key categories like cost, exposure strategy, performance and a mystery category."

Two industry experts are brought in to debate the ETFs and eventually declare a winner.

Be sure to check out links to both ETF Guide and the judges down below! Enjoy the battle!

In this episode of ETF Battles, Ron DeLegge @ETFguide referees an audience requested showdown between stock market ETFs from State Street Global Advisors and Vanguard. It's the SPDR Portfolio S&P 500 Growth ETF (SPYG) vs. the Vanguard S&P 500 ETF (VOO). Which stock market ETF is the better choice for stock market investors?

Program judges David Kreinces ETFPM.com and David Dierking from TheStreet.com examine this audience requested ETF matchup.

Each ETF is judged against the other in key categories like cost, exposure strategy, performance and a mystery category. Find out who wins the battle!

*******

ETF Battles is sponsored by: Direxion Daily Leveraged & Inverse ETFs. Know the risks. Proceed Boldly.

Visit http://www.Direxion.com

*******

CONTENT OF THIS VIDEO

0:00 Show starts here

1:18 Big announcement

1:40 ETF Battle matchups

2:14 Judges introduced

2:30 Battle categories introduced

3:16 ETF Cost comparison

4:20 Exposure strategy analysis

6:35 ETF Performance comparison

8:55 Mystery category analysis

10:50 Judges recap their ETF winner

12:41 Final ETF Battle scorecard

14:00 Visit our viewer resources section

14:24 Which ETF Battles do you wanna see?

14:38 Show conclusion

*******

Get in touch with our judges:

David Kreinces (ETFPM.com) https://www.etfpm.com

David Dierking (TheStreet.com) https://www.thestreet.com/etffocus/au...

*******

YOUR RESOURCES FROM RON

*******

Margin of Safety tool: Join our waiting list http://tinyurl.com/muhwcy7s

Get Ron's weekly newsletter https://tinyurl.com/2p8bxy82

Free ETF Guides https://tinyurl.com/4uvfx4m7

Get feedback on your portfolio's performance https://tinyurl.com/cz4ahj52

Get your ETF Battles gear here: https://tinyurl.com/27uj6hmv

#stockmarket #investing #etf

Investors Were Expecting A Rebound From Tuesday's Plunge In The S&P 500. Based On History, It Was A Lot Less Likely Than You'd Think.

David Dierking — Wed, 14 Sep 2022 20:36:22 GMT

Following 4% down days in the S&P 500, stocks rebounded the next day just over half the time.

A lot of investors were expecting a rebound from yesterday's 4% loss in the S&P 500. Historically, that's far from a sure thing following big down days. Let's break it down...

S&P 500 Returns Following Big Down Days

Including Tuesday, the S&P 500 has posted a 4%+ decline 45 times since the $SPY ETF debuted in 1993. It posted a positive return the following day just 60% of the time.

S&P 500 Returns Following Big Down Days

The S&P 500 has averaged a return of about 1% in those cases, but the tails have been very wide in this data set.

When these 4%+ declines have occurred probably explains a lot about why there's a relatively low success rate. Half of those days occurred during the financial crisis when volatility was high & big daily price swings were the norm. Another 9 occurred during the COVID recession.

We see another handful during the tech bubble and the 2011 debt ceiling crisis. This was the 2nd time this year that we've seen a 4% decline. Those periods alone account for 87% of the major down moves in the S&P 500.

These drops by and large occur during longer high volatility periods where it's nearly just as likely that we see a large rebound or a continuation of losses. In short, don't bank on an automatic rebound following big down days. Historically, it's nearly a coin flip.

Investing Strategy: Inflation Isn't Going Away; Here Are 5 ETF Hedges For Your Portfolio

David Dierking — Wed, 14 Sep 2022 16:18:23 GMT

Investors often use TIPS, but options, interest rate swaps, Treasuries, commodities and inflation-sensitive stocks can also offer protection.

This week's August CPI print perhaps wasn't a worst case scenario for the markets, but it was pretty ugly. Investors have been anticipating and hoping for a more dovish stance from the Fed since early this summer, but so far they've failed to get it. In fact, the Fed has firmly rejected that notion at every turn.

Because of that, the market wasn't prepared for this week's 8.3% inflation print. Yes, it was down from last month, but the street was expecting 8.1%. More hopeful investors were anticipating something below 8%. A miss on the inflation report would have been one thing and it probably would have resulted in a sell-off in equities. In this case, the gap between between expectation and actual was much larger than normal. Thus, we get a BIG sell-off in stocks.

The biggest issue I see today isn't that the August report missed estimates. It's that inflation is probably going to be persistently higher for a while. The core inflation rate, which ignores food and energy but includes rents, healthcare costs and things like that, went up again last month. This is the stickier inflation that tends not to go away once it's been priced in. If somebody is paying $2000 a month for rent, it usually stays at $2000 a month even if overall inflation comes down or there's a recession. People get used to paying it, so there's no reason to drop the cost.

Inflation will eventually come back down, but it may be months from now. Plus, we're only one geopolitical event away from energy or food prices shooting higher again.

Investors often use TIPS as inflation protection, but there are other ways to do it too. Options, interest rate swaps, Treasuries, commodities and inflation-sensitive stocks can all offer varying degrees of inflation protection with different outcomes.

5 ETF Hedges To Protect Your Portfolio From Inflation

Each of the ETFs I'm going to profile here use one or a combination of these non-TIPS strategies. In the interest of full disclosure, most of these ETFs are small. Only one has more than $15 million in assets, so you'll need to pay attention to trading costs if you consider buying them.

But each of these has the potential to be a very useful tool for investors if inflation decides to stick around for a while.

Ionic Inflation Protection ETF (CPII)

CPII is an actively managed fund that looks to generate positive returns during periods of high or rising inflation as well as during periods of rising interest rates and fixed income volatility. In other words, all of the scenarios that we're experiencing right now. It does this by investing in inflation swaps on the CPI, swaptions on U.S. interest rates and TIPS.

This fund only debuted in June of this year, so we don't have a fully data set to work with yet. What we do know is that most of the portfolio is currently invested in short-term TIPS, but there are other allocations to both cash and interest rate swaps. The interest swap position is logical. When inflation expectations rise, interest rates tend to rise as well and that's exactly what we've seen over the past year.

Over its brief history, CPII has gained a little over 2% compared to roughly a 1% loss for both TIPS and Treasuries. Income seekers will no doubt be enticed by the fund's current yield of 14%.

Amplify Inflation Fighter ETF (IWIN)

IWIN also takes a multi-asset approach and is generally comprised of various inflation-sensitive stocks and commodities aimed to benefit directly or indirectly from inflation. I like this fund quite a bit because it takes one of the most diverse approaches to creating an inflation-sensitive portfolio.

IWIN's portfolio today consists of allocations to miners, commodities, land development companies, commodity REITs, homebuilders and real estate tech names as well as the more traditional interest rate hedges. Within the commodity holdings are bitcoin futures contracts, gold and agricultural commodities. It's one of the most diversified products on the ETF market and helps avoid the risk from any single asset class that doesn't perform as expected. Within the equity sleeve, the fund is about 40% large-caps and 60% mid- and small-caps.

IWIN is also new this year. It's an actively-managed fund, which is what you want for this type of strategy, and the 0.85% expense ratio is actually fairly reasonable given the active management costs and what you're getting for the price.

Global X Interest Rate Hedge ETF (IRHG)

Global X has always been a leader in thematic ETFs and adds another nice option in IRHG. This fund isn't directly an inflation hedge, but it provides a hedge against a sharp increase in long-term U.S. interest rates, which makes sense given the high correlation between interest and inflation rates. It invests in long interest rate swap options (swaptions) and long positions in short term U.S. Treasury securities, the latter of which is mainly utilized for cash management purposes.

IRHG is also new this year (a theme that's obvious given how high inflation hasn't been a major problem for decades up until this year). Its timing, however, has been great. Since its July inception, the 10-year Treasury yield has risen from around 2.8% to 3.4%. That's led to a return of more than 11%. Again, this is not a pure inflation hedge in the way that some other funds on this list might be, but given how inflation rates and interest rates tend to move in the same direction, it still qualifies as a hedge.

Quadratic Interest Rate Volatility & Inflation Hedge ETF (IVOL)

IVOL is the largest and most well-known of this bunch having launched in 2019. This fund seeks to protect purchasing power, mitigate inflation risk, profit from an increase in volatility and a steepening of the yield curve, and provide inflation-protected income. IVOL invests in a combination of TIPS and dynamically managed fixed income options.

IVOL was the original interest rate/inflation hedge strategy before it became more popular this year. While the TIPS and swap option income has helped overall performance, it's important to remember that most of the portfolio is still Treasury securities. That means total returns have suffered in 2022. IVOL is still outperforming the broader Treasury market this year by about 2%, but it's still fallen about 10% on the year.

Global X Interest Rate Volatility & Inflation Hedge ETF (IRVH)

If IRHG is an interest rate hedge, IRVH is more of your traditional inflation hedge. It has three primary goals - to hedge relative interest rate movements arising from a steepening of the U.S. interest rate curve, to benefit from periods of market stress when interest rate volatility increases and to provide inflation-protected income.

IRVH ends up looking a whole lot like CPII - mostly TIPS with a side of interest rate swaps. Similarly, it also pays distributions on a monthly basis, but carries the advantage on cost. CPII has an expense ratio of 0.70%, but IRVH charges just 0.45%.

Conclusion

IVOL gives us a good view into how it and strategist like it, such as CPII and IRVH, can perform in adverse conditions. Of the three, I'd still stick with IVOL for now based on its history and asset base, but IRVH has a chance of becoming the choice in the future. Global X has a solid business model behind it and is a well-known name in the ETF world. It's still really small and needs to grow to become a better option.

IRHG is perhaps the more pure play on inflation, strange as it sounds because it's an interest rate hedge. Even though inflation has soared and yields on TIPS have taken off, TIPS have been hurt by the overall bear market in bonds. Therefore, they haven't provided nearly as much protection as investors may have hoped for. The straight interest rate hedge has been much more closely correlated with rising inflation rates and would have done a much better job protecting against inflation.

IWIN is a really nice choice though. Because it's invested in stocks, commodities and other asset classes, it's still exposed to the downside risk that comes with investing in such things. The broad diversity and comparatively lower correlation with other asset classes is an advantage though and is a nice alternative to TIPS.

ETF Battles: Best All-Market Stock ETF? It's Vanguard vs. Fidelity!

David Dierking — Tue, 13 Sep 2022 13:35:27 GMT

Vanguard's two total stock market ETFs match up against Fidelity's Nasdaq Composite ETF.

If you've ever wondered what I sound like in person, here's your chance! My thanks to Ron and ETF Guide for feeling that I'm qualified to appear on their show!

And there will be more to come soon in the future!

**********

Note: I'm excited to be partnering with ETF Guide to bring you their weekly web series, "ETF Battles".

ETF Guide founder, Ron DeLegge, explains that in a typical "battle", "each fund is judged against the other in key categories like cost, exposure strategy, performance and a mystery category."

Two industry experts are brought in to debate the ETFs and eventually declare a winner.

Be sure to check out links to both ETF Guide and the judges down below! Enjoy the battle!

In this episode of ETF Battles, Ron DeLegge @ETFguide referees an audience requested showdown between all-market stock ETFs - the Fidelity Nasdaq Composite Index ETF (ONEQ), the Vanguard Total World Stock ETF (VT) and the Vanguard Total Stock Market ETF (VTI). Which stock market ETF is the better choice for investors?

Program judges David Kreinces ETFPM.com and David Dierking from TheStreet.com examine this audience requested ETF matchup.

Each ETF is judged against the other in key categories like cost, exposure strategy, performance and a mystery category. Find out who wins the battle!

*******

ETF Battles is sponsored by: Direxion Daily Leveraged & Inverse ETFs. Know the risks. Proceed Boldly.

Visit http://www.Direxion.com

*******

CONTENT OF THIS VIDEO

0:00 Show starts here

0:35 Which ETF Battles do you wanna see?

0:52 Visit our viewer resources section

1:22 ETF Battle matchups

1:40 Judges introduced

1:57 Battle categories introduced

2:23 ETF Cost comparison

3:57 Exposure strategy analysis

6:53 ETF Performance comparison

9:00 Mystery category analysis

12:37 Judges recap their ETF winner

14:24 Final ETF Battle scorecard

16:35 Visit our viewer resources section

16:48 Which ETF Battles do you wanna see?

17:03 Show conclusion

*******

Get in touch with our judges:

David Kreinces (ETFPM.com) https://www.etfpm.com

David Dierking (TheStreet.com) https://www.thestreet.com/etffocus/au...

*******

YOUR RESOURCES FROM RON

*******

Margin of Safety tool: Join our waiting list http://tinyurl.com/muhwcy7s

Get Ron's weekly newsletter https://tinyurl.com/2p8bxy82

Free ETF Guides https://tinyurl.com/4uvfx4m7

Get feedback on your portfolio's performance https://tinyurl.com/cz4ahj52

Get your ETF Battles gear here: https://tinyurl.com/27uj6hmv

#stockmarket #investing #etf

Best U.S. Treasury ETFs (Updated September 2022)

David Dierking — Mon, 12 Sep 2022 13:42:03 GMT

There are a lot of great ultra-cheap options in this space for investors.

For anyone who's banked on Treasuries to help protect their portfolio from the bear market in equities this year, they've probably been mighty disappointed. We haven't seen an inflationary environment like this since the 1970s and that's completely broken the traditional relationship between stocks and bonds. Treasuries should be inversely correlated to stocks in most normal circumstances. Instead, we've seen the S&P 500 and long-term Treasuries both decline by more than 20% at the same time. That's left investors with precious few places to seek safety.

The damage has taken place all along the yield curve. To give a sense of how unusual this environment has been, the iShares 1-3 Year Treasury Bond ETF (SHY) experienced a maximum loss of 2% over its lifetime prior to this year and that was during the financial crisis. In 2022, it fell nearly 5% from peak to valley. The iShares 20+ Year Treasury Bond ETF (TLT) fell as much as 24% during the financial crisis, but was down as much as 34% earlier this year. There has never truly been a Treasury market quite like the one we're in right now.

Regardless of the current environment, there are a lot of strong Treasury ETFs to choose from. More than half of the nearly 50 non-TIPS Treasury ETFs available come with an expense ratio of less than 0.10%. A lot of them are also more than large enough to avoid any potential issues with trading costs being too high. That means that choosing which Treasury ETF is right for you really comes down to whether you want the relative safety of short-term notes, the capital appreciation potential of long-term bonds or something in between.

U.S. Treasuries

Unlike the equity ETF market, which has a lot more diversity, the Treasury ETF market is dominated by the major issuers - Vanguard, State Street, BlackRock and Schwab. Out of the top 30 ETFs on these rankings, just four come from issuers outside of the heavyweights. This is one of those areas of the ETF market that I don't think is harmed by a lack of issuer diversity because Treasury investing is not as nuanced as investing in different themes or strategies within equities. Investors are getting broad, ultra-low cost coverage and that's a good thing.

Ranking The U.S. Treasury ETFs

Methodology And Factors For Ranking ETFs

Before we dive in, let's establish a few ground rules.

Second, let's run down the factors I used in the ranking methodology.

Expense Ratio - This is perhaps the most important factor since it's the one thing investors can control. If you choose a fund that charges 0.1% annually over a fund that charges 1%, you're automatically coming out ahead by 0.9% annually. You can't control what a fund returns, but you can control what you pay for the portfolio. Lower expense ratios equal more money in your pocket.
Spreads - This relates to how cheaply you can buy and sell shares. Generally speaking, the larger the fund, the lower the spreads. Bigger funds usually have many buyers and sellers. Therefore, it's easier to find shares to transact and that makes them cheaper to trade. On the other hand, small funds tend to trade fewer shares and investors often need to pay a premium to buy and sell. Considering expense ratios and spreads together usually give you a better idea of the total cost of ownership.
Diversification - Generally speaking, the broader a portfolio is, the better chance it has at reducing overall risk. A fund, such as the Energy Select Sector SPDR ETF (XLE), provides a good example. 45% of the fund's total assets go to just two stocks - ExxonMobil and Chevron. By buying XLE, you're putting a lot of faith in just those two companies. An equal-weighted fund, such as the Invesco S&P 500 Equal Weight Energy ETF (RYE), would score higher on diversification than XLE.
FactSet ETF Scores - FactSet calculates its own proprietary ETF ranking for efficiency, tradeability and fit. They basically are designed to tell us if an ETF is doing what it sets out to do. I'm not going to copy and paste that work that they're doing, but there is some influence there to make sure my rankings are on the right path.

There are a few other minor factors thrown into the mix, but these are the main factors considered.

I'm ranking ETFs based on more basic structural factors. Are they cheap to own? Are they liquid? Do they minimize trading costs? Do they maintain risk-reducing diversification benefits?

Best U.S. Treasury ETFs

While it's easy to assume that in a battle of low cost you'll find a Vanguard or iShares name at the top of the list. It's actually Schwab that owns not just the #1 fund in these rankings but the #2 fund as well.

Best U.S. Treasury ETFs

The Schwab Short-Term U.S. Treasury ETF (SCHO) and the Schwab Intermediate-Term U.S. Treasury ETF (SCHR) take the top two spots based on their 0.03% expense ratios and large asset bases. In all honestly, there's very little to distinguish the top 7 funds on this list. All have multi-billions of dollars invested in them and have expense ratios of 6 basis points or less. That could have been a bigger point of contention a year ago when yields were still next to nothing and every basis point mattered. Today, the iShares Short Treasury Bond ETF (SHV), which targets bonds with a remaining maturity of less than one year, has a yield of nearly 2.5%. Those 2-3 basis points are much less consequential now.

In a bit of a surprise, the BlackRock suite of original Treasury ETFs - SHV, the iShares 1-3 Year Treasury Bond ETF (SHY), the iShares 3-7 Year Treasury Bond ETF (IEI), the iShares 7-10 Year Treasury Bond ETF (IEF), the iShares 10-20 Year Treasury Bond ETF (TLH) and the iShares 20+ Year Treasury Bond ETF (TLT) - don't score relatively well. They are all still worthwhile ETFs to consider, but the 0.15% expense ratios don't hold up well when there are so many cheaper options. The comparatively newer iShares 0-3 Month Treasury Bond ETF (SGOV) and the iShares U.S. Treasury Bond ETF (GOVT), which invests in the entire government bond market are among the highest-rated iShares ETFs on the list since they come in at a more competitive 0.05%. Still, SGOV is BlackRock's highest entry on this list way down at #9.

As far as the other two big issuers are concerned, State Street lands its big trio - the SPDR Short-Term Treasury ETF (SPTS), the SPDR Intermediate-Term Treasury ETF (SPTI) and the SPDR Long-Term Treasury ETF (SPTL) - all land in the top 7. State Street's Treasury ETF lineup is actually fairly limited with only the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL) and the SPDR Bloomberg 3-12 Month T-Bill ETF (BILS) existing in addition to those three. BIL, for the record, is one of my favorite cash alternative ETFs available.

The only two Vanguard ETFs with more than $10 billion - the Vanguard Short-Term Treasury ETF (VGSH) and the Vanguard Intermediate-Term Treasury ETF (VGIT) - occupy #3 and #4.

Among the other Treasury ETFs on this list...

Best U.S. Treasury ETFs

It seems a little unfair to include the last four ETFs on this list since they're not pure Treasury ETFs in the way that the others are. The Innovator 20+ Year Treasury Bond 5 Floor ETF - July (TFJL) and the Innovator 20+ Year Treasury Bond 9 Buffer ETF - July (TBJL) bring the popular buffer style of ETF over to the world of Treasury bonds. The cost of layering on and managing the protection comes with an understandable cost, but I can see these products catching on eventually.

The Global X Interest Rate Hedge ETF (IRHG) invests in a combination of interest rate swap options and short-term Treasuries for liquidity purposes. It's designed to increase in value when interest rates rise and is up 8% on the year so far.

The KraneShares Quadratic Deflation ETF (BNDD) in another unique offering that invests mostly in long-term Treasuries, but adds on long options in the shape of the interest rate curve. This latter part of the strategy could benefit during a flattening yield curve scenario that is typically indicative of recessionary or deflationary pressures.

If you're looking for a real home run swing in Treasuries, you'll want to take a look at the PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ) or the iShares 25+ Year Treasury STRIPS Bond ETF (GOVZ). Both carry very high duration risk and would likely be the biggest beneficiaries in the event that rates fall again, but year-to-date returns demonstrate how risky they can be.

This Week's Inflation Number Will Drive The Next Leg Of This Market

David Dierking — Sun, 11 Sep 2022 21:27:50 GMT

Here's what I'm watching this week regarding stocks, bonds and the Fed.

The August inflation report, which will be released on Tuesday this week, will be the only number the market cares about. It’s what’s driven the equity markets over the past year. It’s what’s driven soaring bond yields. It’s going to be what drives where the market goes throughout what’s left of 2022.

Let’s set the table first. The street expects the headline inflation rate to come in at 8.1%. That would be down from 8.5% in July and a peak of 9.1% in June. The core inflation rate, which takes out the more volatile food and energy price changes, is expected to tick up from 5.9% in July to 6.1% in August. That’s still below the 6.5% rate from March, but it’s also the same year-over-year rate we saw in May.

In other words, food and energy prices are coming back down, but the stickier parts of inflation, such as rents and healthcare costs, have not.

Food and energy prices are the most visible sources of inflation since you see those prices every week when you go to the grocery store or fill up your tank. This is a good thing as far easing immediate household budget pressures, but that headline inflation rate is going to have a hard time declining to more historically normal levels until core inflation breaks.

That, of course, is going to effect everything. The Fed will make future policy decisions based on this and equities could potentially move higher if investors feel that inflation is coming under control.

Here are three things I’m watching with respect to inflation this week.

The Fed’s Rate Hike Plans Won’t Change

Even if the August inflation rate comes in slightly lower than expected, the Fed will keep plowing forward with its tightening plans. Right now, the markets expect a 75bp hike in September, a 50bp increase in November and another quarter-point in December. I believe that’s locked in even if inflation slows down more than expected.

If inflation comes in above estimates, there’s a chance that markets could price in a terminal rate higher than the 4% rate it’s currently expecting. In that event, we’re probably looking at a negative reaction for both stocks and bonds. I suspect this outcome is unlikely, but still possible.

It Would Be Significant If Growth Stocks Begin Leading

Last week was notable for where the equity market’s biggest gains came from and where they didn’t. Growth and high beta were the leaders, while energy was easily the worst performer. That’s interesting because lagging performance from growth is an indicator that investors are not enthusiastic about where the economy is heading. If energy, which has easily been the market’s best performer, starts becoming the laggard and growth starts taking over, that’s a sign that investors are becoming more positive.

It’s exactly the same trend that happened this past summer and, even though it turned out to be a failed bear market rally, taking advantage of this pivot early on could lead to above average gains in the near-term.

Falling Inflation Should Lead Bond Yields Lower, But Will It Happen?

Bond yields and inflation rates are highly correlated. We’ve seen that consistently throughout the past year. Therefore, it was logical to assume that bond yields should come back down once inflation rates started easing. We saw inflation come down in July and should see it happen again in August. But so far we’ve seen Treasury yields continue to rise.

I think part of the reason is political. Even though energy prices have come down, there’s a crisis in Europe that has energy prices soaring and OPEC is shown little willingness to help on the supply side. If energy prices could shoot higher again on a lack of supply, inflation could be pressure to move higher as well. If inflation moves higher, interest rates probably move higher too. I think the bond market is sniffing some of this out.

Tuesday’s inflation report will be the main event this week and likely spikes volatility to some degree, but I’m not sure how much it ends up changing the calculus in the grand scheme of things.

With that being said, let’s look at the markets and some ETFs.

As I just mentioned, last week’s pivot from energy into growth was interesting, but only if it carries forward. We’ve seen some of these moves before, but they ended up being just a short break in a longer trend. I’m skeptical that growth makes a prolonged run here in the way they did last summer because there’s just too much going on that’s headed in the wrong direction. Utilities continue to be one of the market’s leaders, but there’s still not really a consensus leadership trend in this market. Defensives, cyclicals and growth all have their winners and losers.

The broader tech sector only matched the market at a high level, but there was a lot to like once you dig down. Cloud, cybersecurity, internet and software stocks all gained 5-6%. Tech has had a rough run since last summer’s rally and it would be a positive sign if the sector can build on last week’s gains. Also encouraging is the rebound in discretionary stocks. They had begun underperforming during the 2nd half of the summer, but have been very solid over the past couple of weeks. Any further outperformance from tech and discretionary here would be a sign that investors are growing more bullish.

There’s also a shift happening with cyclicals. The one sector I’m finding interesting here is financials. Not only are they becoming a leader here in the United States, they’ve had a solid couple of weeks in Europe as well. Previous leaders - industrials and energy - have begun lagging a bit, although materials are still hanging in there. Cyclicals are still doing relatively well because value and dividend payers are doing relatively well, but the level of volatility concerns me a bit.

The dollar rally took a pause for at least one week, but I don’t think the rally is done. Rate hikes in Australia, Europe and Canada helped give a modest bit of support to foreign currencies, but it’s likely a blip. Given what’s happening in China and Europe, it seems unlikely that demand for dollar assets will diminish any time soon. Gold, on the other hand, is still showing no willingness to help out in this hyperinflationary environment.

Best Performing Dividend ETFs For August 2022

David Dierking — Tue, 06 Sep 2022 15:08:12 GMT

High yield dividend ETFs performed comparatively better, but the biggest winners came from unexpected places.

As stocks declined broadly in August, dividend payers helped to ease the pain. Dividend ETFs, in general, outperformed the S&P 500 by about 2% as investors gave up on the idea of a Fed pivot for the time being. With Jerome Powell firmly laying out the Fed's plans to continue aggressively raising interest rates until inflation is back under control, stocks lost the one positive narrative that could have inspired another rally.

Top Dividend ETFs

Unfortunately, the leadership from dividend stocks in August didn't translate into gains for investors. Just two dividends, both focused on Japan, managed to generate a positive return, although there were well over a dozen that beat the S&P 500 by more than 200 basis points. Interestingly, many of the best performing dividend ETFs came from an area of the market that investors have been working hard to avoid this year - emerging markets.

Even though this group has steadily underperformed throughout 2022, better than average performance from China and attractive valuations helped push emerging markets dividend ETFs ahead. There's still a great deal of risk in emerging markets, notably from the dual impacts of high debt levels and a strong dollar, but I don't think valuations can be ignored here. Many EM dividend ETFs have P/E ratios in the single digits and at some point the relative value becomes worth the risk. I wouldn't expect consistent leadership, but August's performance shows that there's still potential here.

Looking ahead through the remainder of 2022, I think dividend ETFs still have a good chance of outperforming the broader market. I base this on the opinion that the Fed will not stop raising interest rates until at least the December meeting. That uncertainty regarding the path of rates, inflation and the direction of the economy will likely put a cap on any significant gains in equities. As Treasuries continue failing to act as a defensive alternative to stocks, investors will keep looking at conservative strategies, including dividends, low volatility and value, as options. That should keep interest in dividend stocks relatively high.

Only when the Fed announces that it's going to pause its rate hiking cycle will stocks really have a chance at a sustainable rally again. U.S. stocks have been highly reactive to Fed policy decisions pretty much since the financial crisis, but especially since the 2018 mini-bear market. Once we get that dovish Fed pivot, leadership probably switches over to the growth and high beta names that led the market higher before this year. I don't see that scenario likely playing out until at least late in the year.

For now, the environment still looks comparatively favorable for the remainder of 2022 and August was a good indication of that trend.

Here's the list of the best performing dividend ETFs for August 2022.

Best Performing Dividend ETFs for August 2022

Let's start with the two funds at the top - the WisdomTree Japan Hedged SmallCap Equity ETF (DXJS) and the WisdomTree Japan Hedged Equity ETF (DXJ). They were the only funds to stay in the green and it's clear to see what the catalyst was. The hedge against the dollar added nearly 5% to the total returns of both comparable non-hedged funds (the iShares MSCI Japan ETF (EWJ) and the iShares MSCI Japan Small Cap ETF (SCJ) both lost 4-5%). Japan is going through its own set of issues - yield curve control suppressing bond yields and a stagnant economy - but any foreign equity strategy that was able to avoid the soaring dollar added to returns.

WisdomTree captured all four top spots in this month's list. The WisdomTree Emerging Markets High Dividend ETF (DEM) and the WisdomTree Emerging Markets SmallCap Dividend ETF (DGS). In case you missed my top dividend ETF picks for September, I included DEM for the same reasons that pushed it to outperform in August. DEM is trading at just 6 times forward earnings. That alone isn't a huge selling point since the 5-year average P/E ratio is only 9, but it is trading significantly below its longer-term average. I also believe the dollar is due for a mean reversion, which should work in favor of emerging markets dividend ETFs. The iShares Emerging Markets Dividend ETF (DVYE) is another fund from this group that performed comparatively well.

Another pair of my favorite dividend ETFs - the VictoryShares U.S. Large Cap High Dividend Volatility Weighted ETF (CDL) and the VictoryShares U.S. Equity Income Enhanced Volatility Weighted ETF (CDC) - land in the top 15. CDL offers more pure high dividend stock coverage, while CDC adds and reduces exposure based on market drawdowns, but both use smart strategies for portfolio construction. I think that going after straight high yield stocks might find market volatility in the near-term a bit of a headwind, but CDC would be a nice way to try to capture high yields while adding a risk hedge.

Best Performing Dividend ETFs for August 2022

The top performer lists of the past couple months have featured mostly smaller, under the radar names that may not be familiar to many investors. The second half of the August top performer list is quite the opposite. You'll see a number of the largest dividend ETFs that also outperformed the broader market by a sizable margin.

The SPDR S&P Dividend ETF (SDY), the WisdomTree U.S. High Dividend ETF (DHS), the Vanguard High Dividend Yield ETF (VYM), the Global X SuperDividend U.S. ETF (DIV) and the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) are all focused on high yielders, which outperformed the dividend growth strategy by about 100 basis points in August. Each one of these ETFs has outperformed the S&P 500 by at least 10% year-to-date, but DHS has seen the greatest success this year having gained more than 2%.

The presence of the ALPS Sector Dividend Dogs ETF (SDOG) highlights another theme that worked well in August - value. Growth sectors, including tech and communication services, as well as high beta lost about 5% on the month, but defensive and, somewhat surprisingly, cyclicals managed to do relatively well. Financials and industrials, in particular, have held up nicely over the past month and these two sectors tend to be filled with high yielders. Value is another theme that could look interesting over the latter part of 2022.

5 Dividend ETF Picks For September 2022

David Dierking — Mon, 05 Sep 2022 13:00:00 GMT

This could be the month where high dividend yield ETFs and international funds pay off.

The S&P 500 fell 4% and the Nasdaq 5% in August, underscoring the negative overall sentiment that continues to hover over the markets. The summer rally, which resulted in some of the more optimistic types to call for a new bull market, turned out to be nothing more than another failed bear market rally, something that I’ve been warning about for the past few weeks. When stocks rise on an assumed but not confirmed catalyst (Fed pivot) and the economic data keeps trending worse, it looked like a trap setup for equity bulls. With equities down about 9% from their mid-August peak, the major U.S. indexes look much more fairly valued today than they were a few weeks ago.

My three dividend ETF picks from last month - the VictoryShares U.S. Equity Income Enhanced Volatility Weighted ETF (CDC), the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) and the FlexShares Quality Dividend Defensive Index ETF (QDEF) - all beat the S&P 500 in August, but so did dividend ETFs in general. Of the group, CDC performed best, losing 1.5% but making it the month’s 12th best performer out of nearly 150 funds.

I expect dividend ETFs will be lined up for outperformance again in September, but it’ll likely all come down to the August CPI report, which will get released on 9/13. The July report showed that inflation came in below expectations and helped fuel hope that conditions were easing. The data since then has been mixed with producer prices remaining stubbornly high but wage growth cooling a bit. If we get another below average reading, it could spark at least a short-term rally in risk assets on the belief that the Fed could pause rate hikes sooner rather than later. If, however, inflation proves sticky, it could be another leg down for equities and a retest of 2022 lows.

My dividend ETF picks for September still have a bit more of a defensive tilt in nature, but there’s also something there for those looking at high yielders. I’m also adding a couple of choices from some much-avoided areas of the market - international stocks.

Investing in foreign equities has mostly been an exercise in self-inflicted pain throughout 2022. Yes, Europe is dealing with an energy crisis, China’s accelerating into a real estate crisis and Latin America is experiencing huge swings in volatility. I think there’s some opportunity here though. Emerging markets dividend ETFs are trading at P/E ratios in the single digits. International stocks have outperformed the S&P 500 over the past two weeks and the dollar rally looks wildly overdone. I don’t know if any of those factors will ultimately work out in investors’ favor in September, but I do think a mean reversion is overdue.

With that in mind, here are my dividend ETF picks for September.

Top Dividend ETF Picks for September 2022

First Trust Morningstar Dividend Leaders Index ETF (FDL)

FDL is a fund that focuses on stocks backed by expected future earnings and dividend growth. It’s an ETF that has developed a nice solid long-term track record and is actually up about 1% during a year when most of the major indices are down double digits.

I like the fact that FDL looks forward and not back, especially in this environment. Looking back over the past year is going to lead to a wildly different set of results compared to what the coming 12 months will look like. Focusing on companies that can continue to grow earnings in what looks like is a coming recession will significantly narrow down the list of eligible stocks, but it should also yield a portfolio of defensive cash cows that should look attractive in such an environment.

Invesco S&P Ultra Dividend Revenue ETF (RDIV)

RDIV is an ETF that pulls out the highest-yielding stocks from a starting universe of large- and mid-caps. Then, as the name suggests, weights the qualifying components by the amount of revenue they generate. Revenue-weighting is a logical method for tilting a portfolio, but it’s still an unusual feature within the ETF universe. Earnings can be manipulated and dividends may be unsustainable, but revenue is a fairly good way to see which companies are making sales and which aren’t.

There is a bit of a quality component to this fund too. It scrubs out the top 5% of securities by dividend yield and excludes the top 5% of securities within each sector by dividend payout ratio. It’s a good way to help eliminate some of those red flag stocks that may have artificially high or unsustainable yields.

RDIV tilts very heavily towards cyclical & defensive sectors and, amazingly, has no tech exposure whatsoever.

Invesco KBW High Dividend Yield Financial ETF (KBWD)

KBWD is an outlier within this list in that it is an unabashed high yield grab. It tracks a dividend yield weighted index of companies in the business of providing financial services and products. Don’t think of traditional big banks or brokers here. This portfolio is full of mortgage REITs and capital markets firms engaged in lending. Its yield of 10-11% is very enticing, but it’s risky and needs the financial sector to be in favor for it to pay off.

Investors may shy away from REITs in light of what’s going on in the housing market, but this group is really tied more to rental rates than home prices. Rents remain high and vacancies are low, two factors which should both work in this ETF’s favor.

iShares International Select Dividend ETF (IDV)

With a yield of 6.7% and a P/E ratio of 6, there’s clearly value to be had in this group. The big question is whether or not that value can be unlocked. IDV holds 100 stocks from non-U.S. and non-emerging market countries that are among the highest yielding available and dividend weights the portfolio. In that way, it can be a little riskier than ETFs that focus on dividend growers or quality balance sheets, but I think this group could make a run.

Foreign equities have done relatively well recently and this week’s rate decision from the ECB could be the catalyst that puts a top in for the dollar. A declining dollar would be a benefit for international stocks and deep value names could do particularly well.

WisdomTree Emerging Markets High Dividend ETF (DEM)

Here’s essentially the emerging markets equivalent of IDV. The case for DEM for is essentially the same, although the matching P/E of 6 and yield of nearly 10% is perhaps even more attractive. It’s very concentrated, though, with 2/3 of the fund’s assets going to China, Taiwan and Brazil. All three countries are political hotspots and undergoing significant challenges - China with the real estate market, Taiwan and its relationship with China and Brazil with double digit inflation and political risk. It’s a home run swing that could potentially pay off.

With that being said, let’s look at the markets and some ETFs.

ETF Sector Technicals

Most of the market is in near oversold territory with the only real exceptions being energy and utilities. The latter has extended its outperformance streak to more than a month and has been the one sector signaling the bearish tone of equities. Energy remains highly volatile, but has enjoyed a resurgence following its dive early in the summer. Tech has given back nearly all of the outperformance it had built up this summer and has turned into one of the market’s weakest groups. The overall tone is very bearish, but could rebound with a long weekend for investors to regroup.

ETF Performance & Flows

Not much positive to be found just about anywhere within the growth sectors. Consumer discretionary is managing to hang in the better than its peers, but the overall negative sentiment surrounding the retail space and other discretionary spending sectors is preventing too much optimism. Net flow data shows that investors continue to abandon the sub-sector ETFs within this group, although the broad sector ETFs, such as XLK, continue to draw interest. This seems to be a market driven by defensives and cyclicals for the time being, so I’m not expecting a short-term turnaround here.

ETF Performance & Flows

Cyclicals have actually looked a bit interesting here despite a macro backdrop that isn’t providing much support. The biggest outperformance recently continues to come from the energy sector, but financials have finally started holding up better. The lending environment sure looks ugly, but higher interest rates are finally starting to translate into higher stock prices. I don’t think this trend is sustainable, but I do think this is a relative outperformance streak that is overdue.

ETF Performance & Flows

The dollar is still king, but central bank meetings in Europe, Australia and Canada could halt the greenback’s progress. Aggressive rate hikes, especially from the ECB, could draw some interest back to non-dollar currencies and put the brakes on what looks like a far overdone rally. Gold continues to fail at gaining any traction and remains a huge disappointment to those looking at it as inflation protection over the past year.

Powell Just Gave Stocks Permission To Retest Bear Market Lows

David Dierking — Mon, 29 Aug 2022 01:05:20 GMT

His firm "no pivot" commentary at Jackson Hole removed the possibility of a Fed-fueled rebound.

Jackson Hole is usually a platform for the Fed to offer up its views on the state of the economy and the world. At last week’s summit, however, Jerome Powell took the opportunity to deliver just one clear and decisive message. Don’t expect the Fed to come to the market’s rescue any time soon.

Much of the rally in stocks that took place over the two months following the June low was based on the belief that the Fed would soon end its rate hiking cycle. Since energy and commodity prices were coming down, investors took that to mean the Fed would imminently be taking its foot off the gas. Members of the Fed tried to pour cold water over that narrative, but it wasn’t until last week that they finally started to listen.

Growth stocks had been underperforming in the two weeks leading up to this, but last week helped drive home the point. The S&P 500 was down 4%, but I think it’s Treasuries that might be telling the bigger story.

Instead of bond yields rising in response to Powell’s comments, long end yields fell. Granted, they still rose on the short end, which tends to be more closely tied to the Fed, but long-term yields falling is more indicative of investors growing more concerned about recession. Most of the data right now supports the idea that a recession is probably inevitable at this point, but Treasuries have been stubborn to respond since inflation is forcing the curve higher. Last week’s action in government bonds could be an indicator that long-dated Treasuries are finally ready to run.

If Treasury yields are inclined to move lower here even though the Fed shows no signs of ending the rate hiking cycle, that could be bad news for equities. The Fed pivot was the one thing stocks were hanging their hat on. If that’s now out of the picture, there may be very little propping up risk asset prices.

Not only is the macro data troubling, corporate earnings and valuations don’t look ready to help either. Q2 ended up looking not nearly as bad because expectations were so depressed. On the other hand, S&P 500 companies collectively lowered forward guidance from Q3 all the way through the end of 2023. That puts the current forward P/E on the S&P 500 at 20. That’s on the lower end of the range going back over the past couple decades, but unfortunately it’s still on the very high end of where it’s been for the century before that. Bear markets don’t usually end at a P/E of 20 and I suspect this one won’t either. The mid-June bottom on the S&P 500 was at 3666 and I believe we’re heading back in that direction again.

With that being said, let’s look at the markets and some ETFs.

Weekly Stock Market Sector Performance

Defensive sectors took a big step forward last week with utilities and consumer staples both outperforming the S&P 500 by around 1%. Utilities, in particular, have been a consistently strong performer throughout 2022, beating the index by more than 3% in the past month and by an incredible 21% year-to-date. This has been the one sector that has consistently sent the message that equity investors shouldn’t be getting too overzealous given how the Fed is slamming on the brakes and there are both COVID and geopolitical risks to consider. Cyclicals continue to hold up relatively well here, but growth is firmly out of favor.

Weekly Stock Market Sector Performance

Tech has strung together three underperforming weeks in a row, a sharp reversal from its successful run during the summer bear market rally. Consumer discretionary stocks, which had been one of the biggest outperformers since the June bottom as well, had been hanging on much better than tech, but appears to have firmly fallen out of favor as well. Communication services, of course, has been in miserable shape for a while. Growth’s leadership throughout the summer is what helped give the bear market rally the legs that it did, but its performance over the past few weeks is a bad sign.

Weekly Stock Market Sector Performance

Energy stocks have had an incredible month, but it’s mainly due to geopolitical risk - the energy crisis in Europe and OPEC’s threat to keep production suppressed. While it’s not a good thing from macro and consumer standpoints, it’s been a good thing for energy stocks, which had fallen 26% prior to this recent rally. Material stocks are also recovering, while industrials continue to steadily and consistently outperform the S&P 500. It’s been a nice run for cyclicals, which are still managing to perform pretty well despite a deteriorating macro backdrop.

Weekly Stock Market Sector Performance

A couple of areas worth noting here. Natural gas prices continue to soar as the crisis in Europe looks like it might get really ugly. The strong rebound in the dollar is potentially signaling trouble for overseas markets. Emerging markets are particularly vulnerable to a rising dollar since a lot of foreign borrowing is done in dollars. Could it lead to a debt crisis in some of the more leveraged markets? I think risk is still low for now, but this is something that could slow-build over the next 12 months into something more serious.

The JPMorgan U.S. Dividend ETF (JDIV) Is Closing & I'm Disappointed

David Dierking — Thu, 25 Aug 2022 16:19:48 GMT

JDIV checked all the boxes to become a big and successful dividend ETF, but just never caught on.

The dividend ETF space is competitive. In my latest dividend ETF rankings, there are 150 dividend ETFs to choose from and the landscape is dominated by heavyweights, such as Vanguard, State Street and Blackrock. There is right around $350 billion invested in dividend ETFs right now, but just the 10 largest of those funds account for $263 billion of it. The group is very top-heavy, but there's still room for mid-size ETFs to compete and have success.

That's why I had high hopes for the JPMorgan U.S. Dividend ETF (JDIV). Launched back in 2017, it checked all the boxes for what should have been a successful ETF, but it just never caught on.

JPMorgan U.S. Dividend ETF

Namely, it had the JPMorgan name. Obviously, it's a bigger name in the banking world, but JPMorgan Asset Management had slowly and steadily been building its ETF lineup. Its first ETF, the JPMorgan Diversified Return International Equity ETF (JPIN) launched back in 2014 and the company has consistently been bringing new funds to market ever since. Currently, JPMorgan offers 45 different ETFs managing a total of $80 billion.

Its largest and most successful ETFs to date have been the JPMorgan Ultra-Short Income ETF (JPST) and the JPMorgan Equity Premium Income ETF (JEPI). They've also had some success with their "BetaBuilders" suite, which are designed to compete on cost with the Vanguards of the world. The JPMorgan BetaBuilders U.S. Equity ETF (BBUS) actually undercuts comparable Vanguard offerings on cost by coming in at 0.02%.

JDIV should have been a part of that.

JPMorgan U.S. Dividend ETF (JDIV)

It was also competitive on cost. Its 0.12% expense ratio, making it the 8th cheapest out of the 150 dividend ETF universe. The fund's index also seemed to follow a fairly logical strategy. It is designed to establish sector weights by considering both the yield of the sector and the relative volatility of sector returns. From there, it targets the U.S. equity securities within each sector that have a high dividend yield over a rolling twelve month period. What you end up with is a portfolio that focuses on high yield stocks, but adjusts for volatility on both a sector and individual security basis.

In my opinion, the fund, unfortunately, failed because it fell into that gray area where funds typically go to die - its low expense ratio didn't matter because Vanguard already dominates that space and it wasn't "shiny" enough to attract attention. On the former point, we've seen evidence of this from the suite of 0% expense ratios that have already launched. The four ETFs - two from SoFi and two from BNY Mellon - have only attracted a combined $1.3 billion in assets in more than two years. That's certainly a decent number, but not nearly a runaway success despite being free as free can get. Salt was an issuer that debuted a pair of ETFs with -0.05% expense ratios (yes, they paid you to invest). They attracted very little money as well and have since transitioned into other funds.

JDIV never had more than about $80 million in assets and stands at about $60 million right now. That's still a pretty high number for an ETF that's about to close. If you take a look at the list of ETFs currently slated to close, the majority are well below the $20 million mark.

ETF Closure List

The low expense ratio probably helped push the issuer towards closing JDIV despite the higher asset base. With such a low expense ratio, an ETF needs to build up that much more of an asset base to breakeven. I'm sure JPMorgan figured that if it hadn't really gotten close to even $100 million in assets over nearly five years, it was probably never going to happen.

In my latest dividend ETF rankings, JDIV barely cracked the top 50. I had this to say about the fund at the time.

The JPMorgan U.S. Dividend ETF (JDIV) at #46 is the opposite case. It has a great expense ratio, but just hasn't caught on with investors. At just $72 million in assets, it's easily the smallest ETF to land in the top 50. Due to that and the lack of trading volume, spreads are quite high making the total cost of ownership not quite so advantageous.

It's a disappointing end to what I felt was a promising dividend ETF.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Dividend ETF Draft: Which ETFs Should Get Picked First For Your Portfolio?

David Dierking — Tue, 23 Aug 2022 13:00:00 GMT

The 14 best dividend ETFs get selected in order based on cost, yield, strategy and selection methodology.

As a sports fan, some of my favorite events of the year are the NBA and NFL drafts. Perhaps it's the idea that every team may just be a player or two away from turning their fortunes around for the next decade. I think part of the appeal is just the unknown of what's going to happen. It's an interesting exercise in understanding how people value things and which qualities get favored over another.

The same thing could be applied to almost anything, including investments for one's portfolio. Sure, it's not exactly the same because there's nothing preventing you from buying all 10 of the best ETFs out there, but it's still an interesting and worthwhile thought exercise in trying to determine which funds would win in more of a head-to-head matchup.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

You may ask yourself how a dividend ETF draft differs from the dividend ETF rankings that I publish and update regularly. The primary difference is that the rankings are based purely on the numbers. They take into account expense ratios, trading costs, diversification and liquidity. All of these can be boiled down to specific numbers.

But just because a fund is cheaper doesn't necessarily make it a better investment option. Some newer ETFs are coming in with ultra-low expense ratios, which would score well on the dividend ETF rankings, but they're still so small or illiquid or have a questionable strategy that you wouldn't want to choose them ahead of one of the big Vanguard dividend ETFs.

Which dividend ETF should get picked first?

This exercise is meant to take into account both quantitative factors and qualitative factors that can't be measured. Is the fund's investment strategy smart? Does it make sense? Does it do a better job of eliminating some of the worse stocks than another? Are you getting what you're paying for?

The dividend ETF draft is meant to take everything into account. Of course, it's going to be subjective. My opinion may differ from yours in which ETF is "better". If you have different thoughts on which ETFs should rank higher or lower, always feel free to comment or reach out directly.

For this exercise, we're going to go 14 dividend ETFs deep. Why that number? Because the NBA draft lottery consists of 14 teams. And once you get past that number, you need to start splitting hairs a little finer. Investors, for the most part, are going to stick with the top dozen or so, but the dividend ETF rankings cover more than 140 ETFs in total, so I'd encourage you to check that out for a deeper dive.

As a quick note, all data comes from the ETF Action database, which they've kindly given me access to and I use for all rankings and quantitative data work done on this site.

Before we get into it, here are a few of the more prominent dividend ETFs that didn't quite make the cut.

Vanguard High Dividend Yield ETF (VYM)
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
First Trust Morningstar Dividend Leaders ETF (FDL)
ALPS Sector Dividend Dogs ETF (SDOG)
JPMorgan U.S. Dividend ETF (JDIV)
Global X SuperDividend ETF (SDIV)

I know that excluding VYM is easily going to receive the most disagreement. At $43 billion, it's the 2nd largest dividend ETF out there and, with an expense ratio of 0.06%, it's the cheapest. Plus, it's ranked #1 in the dividend ETF rankings. So why did it not get chosen? The answer is its selection criteria. Its index starts by identifying the highest yielding stocks based on forecasted dividends over the next 12 months (which is a nice feature instead of selecting purely based on trailing yield) and selects the top half. Qualifying components are then market-cap weighted. The dividend yield screen doesn't do a particularly good job of including just the highest yielders and the market-cap weighting doesn't do a particularly good job of emphasizing the higher yielders. VYM's 3% yield is certainly better than the 1.7% yield of the S&P 500, but I simply think there are ETFs out there that do a better job of targeting and selecting high yield stocks.

NOBL is another popular ETF for those targeting dividend growth. My biggest beef with this fund is that the 25-year dividend growth screen doesn't do anything to address dividend quality or forward-looking prospects. Granted, the Vanguard Dividend Appreciation ETF (VIG), which uses a similar criteria and will appear on the list below, does something similar, but uses a shorter dividend growth screen and allows for some better growth prospects. Plus, VIG is significantly cheaper.

FDL had a good long-term track record, but the past couple of years have been rough. The 0.45% expense ratio doesn't help either. SDOG utilizes a version of the well-known dividend dogs strategy. It does a lot of things well, but doesn't stand out in any particular way. JDIV is a good example of a fund that scores highly on cost, but isn't quite liquid or large enough to take full advantage of it. If assets grow, I think it'll definitely move up the list. SDIV is popular for its current 13% forward-looking yield, but it's very concentrated and very volatile, making it better as an ancillary holding but not a core one.

Vanguard International High Dividend Yield ETF (VYMI)
Vanguard International Dividend Appreciation ETF (VIGI)
SPDR S&P International Dividend ETF (DWX)

International dividend ETFs didn't make this list because I think U.S. dividend ETFs make better starting points, but I also want to point out the better ones. The Vanguard ETFs rank much higher than the others with cost, not surprisingly, being the big advantage. Next in line is DWX coming from State Street.

With that being said, let's get into the draft!

Pick #1: Schwab U.S. Dividend Equity ETF (SCHD)

Dividend ETF Rank: #4

Schwab U.S. Dividend Equity ETF (SCHD)

Index: Dow Jones U.S. Dividend 100 Index

Overview: SCHD's index tracks a basket of 100 stocks that have long histories of paying dividends, fundamental strength relative to peers based on several financial metrics and above average yields. In order to qualify, companies must have paid a dividend for at least 10 straight years and are evaluated on four fundamentals-based characteristics - cash flow to total debt, return on equity, dividend yield and 5-year dividend growth rate.

Positives: The fund's strategy covers all themes of dividend investing - dividend sustainability and growth, dividend quality and high yield. Expense ratio is among the lowest in the dividend ETF universe.

Negatives: The strategy is a bit complicated and has a lot of qualifying criteria.

Commentary: For me, this ETF checks all the boxes. I tend to prefer dividend ETFs that incorporate more than one targeting criteria since that makes it less reliant on just one aspect of the portfolio. The fund's 3.2% yield is roughly twice that of the S&P 500 and carries Morningstar's highest 5-star rating. Plus, it comes with less risk than the S&P 500.

Why does it come in at #4 in my dividend ETF rankings? Honestly, it comes down to a matter of splitting hairs. The fact that it holds 100 stocks and has more than 40% of its assets in the top 10 holdings means it scores a little lower on diversification. It's a minor quibble though and investors shouldn't shy away from this ETF by any means.

Pick #2: iShares Core Dividend Growth ETF (DGRO)

Dividend ETF Rank: #5

iShares Core Dividend Growth ETF (DGRO)

Index: Morningstar U.S. Dividend Growth Index

Overview: The fund's index targets companies that pay a qualified dividend, must have at least five years of uninterrupted annual dividend growth and their earnings payout ratio must be less than 75%. Companies that are in the top decile based on dividend yield are excluded from the index right off the bat. The final portfolio is dividend dollar weighted, meaning that the companies that pay more cash out in dividends get greater weightings.

Positives: Eliminating the highest yielders helps reduce the risk of including companies who may be vulnerable to a dividend cut due to share price declines. Ultra-low expense ratio.

Negatives: The fund can invest in companies of all sizes, but the dividend dollar weighting methodology ends up giving almost no weight to mid- and small-caps.

Commentary: SCHD, for me, was in a tier of its own, so with that ETF off the board I wanted to stick with a fund that screened for more than one dividend theme. DGRO does that, although you could argue that the 5-year dividend growth history and 75% payout ratio cap aren't terribly strict. Still, it's got a strong track record and is among the cheapest dividend ETFs out there.

I also like the dividend dollar weighting strategy. Granted, it has the drawback of minimizing the impact of small-cap dividend payers, but it has the advantage of giving greater weight to the biggest cash flow generators. In general, those are the kinds of companies you want filling out your dividend portfolio.

Pick #3: Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

Dividend ETF Rank: #10

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

Index: S&P 500 Low Volatility High Dividend Index

Overview: The index begins by identifying the 75 securities within the S&P 500 with the highest dividend yields over the past 12 months with no one sector allowed to contribute more than 10 securities. From those 75 names, it pulls out the 50 stocks with the lowest realized volatility over the past 12 months. The final portfolio is yield-weighted.

Positives: Adding a low volatility screen allows shareholders to capture an above average yield while mitigating some risk, which may not be the case if you just target high yield alone. The fund currently offers a 4% yield.

Negatives: Historically, performance has been very "feast or famine". Calendar year returns often fall in the top 10% or bottom 10% of the peer group. Expense ratio is average.

Commentary: As far as dividend investing strategies that provide a check on each other, low volatility and high yield does a good job. Investing solely in high yielders can come with the added risk of sector concentration (energy and financials are two popular landing spots), but the added low volatility screen helps diversify exposure with 5 separate sectors have 9%+ allocations. This is the first of the three ETFs covered so far that includes REITs.

The extremes in historical returns isn't ideal and emphasizes the need for this ETF to be a longer-term holding. Holding SPHD just for a year or two could really pay off or it could really be an anchor.

Pick #4: SPDR S&P Dividend ETF (SDY)

Dividend ETF Rank: #8

SPDR S&P Dividend ETF (SDY)

Index: S&P High Yield Dividend Aristocrats Index

Overview: The fund's index looks through the S&P Composite 1500 index to identify the stocks of companies that have consistently increased dividends every year for at least 20 consecutive years. Qualifying components within that universe are weighted by indicated yield and adjusted each quarter.

Positives: Dividend growers are often low yielders, but yield-weighting this universe helps boost the income potential of long-term dividend growth stocks. Offers significant exposure to mid- and small-caps. Concentration risk is low.

Negatives: Both the dividend growth and yield considerations are backward-looking. Nothing looks at forward prospects or expectations. Yield boost isn't that big.

Commentary: Virtually every one of the biggest dividend ETFs focuses almost exclusively on large- and mega-cap names. With my three preferred dividend ETFs off the board, I'm going to go with one that diversifies across market caps. Large-caps have been the unquestioned leader over the past decade, but mid-caps offer bigger long-term growth potential. Targeting long-term dividend growers within that all-cap universe offers a nice balance between income and growth.

I do wish the yield being offered by SDY was a little higher (a forward-looking 2.3% currently), but the overall portfolio composition and risk profile are attractive.

Pick #5: WisdomTree U.S. Total Dividend ETF (DTD)

Dividend ETF Rank: #11

WisdomTree U.S. Total Dividend ETF (DTD)

Index: WisdomTree U.S. Dividend Index

Overview: The index consists of U.S. companies that pay regular cash dividends. In addition to standard liquidity and market cap screens, qualifying components must have paid regular cash dividends during the preceding 12 months. The Index is dividend weighted to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year.

Positives: This fund offers simple and straightforward coverage of the entire dividend stock universe without any frills. Dividends are paid monthly instead of quarterly.

Negatives: The expense ratio is a little on the high side considering you're just getting a broad portfolio of dividend stocks without much else.

Commentary: Some who are familiar with dividend ETFs might be surprised to find this fund so high on the list, but the logic is pretty straightforward. If studies suggest that dividend payers outperform non-dividend payers over the long-term, why not just capture the entire universe and bank on history repeating itself? Dividend growers and high yielders may outperform or underperform over different time periods, but owning all dividend payers might help smooth out the ride.

DTD uses a similar aggregate cash dividend weighting strategy to DGRO, except it weights based on what dividends are expected to be, not what they were. WisdomTree does this with a lot of its dividend products and I think it's a nice way to construct a portfolio.

Pick #6: VictoryShares U.S. Equity Income Enhanced Volatility Weighted ETF (CDC)

Dividend ETF Rank: #12

VictoryShares U.S. Equity Income Enhanced Volatility Weighted ETF (CDC)

Index: Nasdaq Victory U.S. Large Cap High Dividend 100 Long/Cash Volatility Weighted Index

Overview: This strategy involves two components - the underlying dividend stock portfolio and the volatility hedge. The portfolio consists of the top 100 highest yielding securities from the top 500 largest securities with the index weights being determined by the inverse of the daily standard deviation (volatility) over the last 180 trading days. The "enhanced" part comes by reallocating the portfolio as stock prices decline. At the first 8% decline, it goes from 100% equities to 25%, but adds back 25% exposure with every additional 8% decline. Think of it as kind of a built-in "sell high, buy low" strategy.

Positives: The equity rotation strategy limits both upside and downside capture, meaning investors can earn market returns with significantly less risk.

Negatives: The adding and subtracting of equity exposure based on market returns can leave the portfolio ill-positioned at times. Equity exposure changes can result in inconsistent yield generation.

Commentary: Rotation strategies can be hit or miss because there are so many variables involved, but CDC tends to hit more often than not. Strategies that have built-in buy/sell strategies have a lot of downside if they're based on emotion or hunches. Funds that use objective, quant-based buy/sell points tend to have more success and the backtest for CDC suggests that the 8% loss increments are optimal.

CDL, which is essentially the same fund without the rotation strategy, is also an option. It's more of a traditional buy-and-hold vehicle and comes with a current yield of 3.2%.

Pick #7: Vanguard Dividend Appreciation ETF (VIG)

Dividend ETF Rank: #3

Vanguard Dividend Appreciation ETF (VIG)

Index: S&P U.S. Dividend Growers Index

Overview: VIG tracks an index of U.S. listed companies that have paid and grown their annual dividend for at least 10 consecutive years. The top 25% highest yield ranked eligible companies from the index universe are excluded. REITs are also excluded. The final portfolio is market-cap weighted.

Positives: Ultra-low expense ratio. The more modest dividend growth requirement allows for newer dividend payers and more growth opportunities.

Negatives: The targeting strategy is kind of..... bland?

Commentary: VIG will always get the benefit of the doubt by having the Vanguard name and the 0.06% expense ratio that comes with it is a great thing for investors. VIG is a solid fund for what it is, which is a broad universe of stocks with a modest history of dividend growth. That makes this ETF a nice cornerstone for a dividend growth portfolio, but there's just nothing terribly exciting about this fund. The exclusion of the top 25% highest yielding stocks certainly takes some risk out of the equation, but it also limits what shareholders earn, which is 1.8% currently. I certainly prefer the more multi-pronged approaches listed already or the broad coverage of DTD.

The natural question here might be "what did VIG have that NOBL didn't". Concern #1 is cost. NOBL charges 0.35% annually. That's a big difference compared to what VIG charges. Concern #2 is portfolio composition. Requiring a 25-year dividend growth like NOBL narrows the universe of eligible stocks considerably and leads to a portfolio full of mature companies with little growth potential. Just 12% of the portfolio is in the more growth-oriented tech and consumer discretionary sectors. Compare that to more than half of NOBL's portfolio being invested in consumer staples, industrials and healthcare. VIG simply has more growth potential than NOBL and I think that's important for a long-term holding to have.

Pick #8: iShares Select Dividend ETF (DVY)

Dividend ETF Rank: #9

iShares Select Dividend ETF (DVY)

Index: Dow Jones U.S. Select Dividend Index

Overview: The fund's index identifies U.S. stocks that 1) have a dividend per share greater than or equal to its 5-year average, 2) have a 5-year average dividend coverage ratio of greater than or equal to 167%, 3) meet a minimum daily trading volume requirement, 4) have paid dividends in each of the previous 5 years, 5) have a non-negative trailing 12 month earnings per share and 6) have a minimum market cap of $3 billion. The qualifying stocks are dividend-weighted.

Positives: This is one of the few dividend ETFs that considers dividend growth, dividend quality and high yield in its strategy (although the criteria are a bit loose). The 25%+ weighting to mid-caps provides more diversification.

Negatives: The selection criteria is oddly specific and a bit overcomplicated. The 0.38% expense ratio rates as below average among dividend ETFs.

Commentary: Think of DVY as kind of a poor man's version of SCHD. It uses all three dividend themes in its selection criteria, which is a plus, but SCHD's targeting methodology is better. Had the criteria been a little tighter or the expense ratio a little lower, I could have easily drafted this ETF in the top 3 and certainly ahead of a single-pronged strategy like VIG's. There's nothing in DVY's targeting that is inherently bad or non-sensical. It just strikes me as relatively non-stringent and hurts its effectiveness.

The fund has accumulated more than $22 billion in assets, so a lot of people sure like it. Its 3.5% yield will also be attractive among income seekers.

Pick #9: FlexShares Quality Dividend Index ETF (QDF)

Dividend ETF Rank: #18

FlexShares Quality Dividend Index ETF (QDF)

Index: Northern Trust Quality Dividend Index

Overview: The index creates a quality dividend score for companies based on management efficiency, cash flows and profitability with the bottom quintile of scores getting thrown out. After diversification controls have been applied, the qualifying components are optimized to create a portfolio with market-like risk but an above average yield and growth potential.

Positives: The fund's targeting and optimization strategies make a lot of sense and consider a lot of characteristics that identify quality companies with sustainable yields.

Negatives: The fund has just never managed to translate its strategy into performance. Historical returns have been average and the yield rarely tops 3%.

Commentary: This is a fund where I really like the strategy, but the end product has failed to deliver. The index's proprietary methodology is a bit of a black box, so we don't know the specific criteria used, but it's very intuitive on the surface. When looking at the performance of each of the dividend investing pillars, I often use QDF as the proxy for dividend quality. I like the fund. I just wish returns had been better. Its annual performance has landed it in the top 20% of its peer group only twice and the last time was in 2015.

QDF will be 10 years old in December, so it's certainly had enough time to see its strategy play out.

Pick #10: WisdomTree U.S. Quality Dividend Growth ETF (DGRW)

Dividend ETF Rank: #17

WisdomTree U.S. Quality Dividend Growth ETF (DGRW)

Index: WisdomTree U.S. Quality Dividend Growth Index

Overview: This index targets dividend-paying stocks and consists of 300 companies with the best combined rank of growth and quality factors. The growth factor is based on long-term earnings growth expectations, while the quality factor is based on three year historical averages for return on equity and return on assets. The index is aggregate dividend weighted.

Positives: The targeting strategy is simple, straightforward and uses logical criteria for measuring growth and value.

Negatives: The dividend yield and expense ratio are only average.

Commentary: Sometimes simpler is better and DGRW is one of those cases. Looking at earnings, ROA and ROE is a very straightforward way of measuring quality dividend growth. This is one of those cases, however, where the aggregate cash dividend weighting methodology doesn't pay off. I would have liked to see the yield at least above 2% here. The portfolio isn't terribly cheap here, at least compared to the other dividend ETFs on this list. When choosing dividend ETFs, I don't want to pay up too far.

Pick #11: iShares Core High Dividend ETF (HDV)

Dividend ETF Rank: #6

iShares Core High Dividend ETF (HDV)

Index: Morningstar Dividend Yield Focus Index

Overview: This fund is characterized by companies with strong financial health and the ability to sustain above average dividend payouts. To determine this, it uses two Morningstar measures - the Moat rating, which must be either “narrow” or “wide”, and a Distance to Default score in the top 50% of eligible dividend-paying companies within its sector. The end portfolio gets dividend-weighted.

Positives: This is one of the few dividend ETFs that charges less than 0.10%. The two Morningstar screens have traditionally done a good of identifying financially healthier companies.

Negatives: Like other dividend dollar weighted schemes, HDV ends up skewing heavily towards large-caps.

Commentary: While Morningstar is certainly a leader in the fund space, using the Moat and Distance to Default rating comes across as a bit of an unknown. Conceptually, they're easy to understand, but they're a bit of a black box. They should, however, do an effective job of identifying companies with good sustainability characteristics.

Concentration is a minor concern - 40% of assets are in just two sectors and nearly half in the top 10 positions - but given its low cost and quality/yield focus, you could make the case that this ETF should have been drafted earlier.

Pick #12: Invesco High Yield Equity Dividend Achievers ETF (PEY)

Dividend ETF Rank: #34

Invesco High Yield Equity Dividend Achievers ETF (PEY)

Index: NASDAQ U.S. Dividend Achievers 50 Index

Overview: PEY's index chooses the 50 highest yielding stocks from a universe of companies that have raised their dividends for at least 10 consecutive years. Only stocks with a minimum market cap of $1 billion are considered.

Positives: PEY currently yields 3.8%, more than double that of VIG, which also targets 10-year dividend growers without the high yield requirement. This is a true all-cap fund with half of assets going into mid- and small-caps. Dividends are paid monthly.

Negatives: The 0.53% expense is unusually high. The small-cap focus makes the fund about 20% more volatile than the S&P 500.

Commentary: At #34 on the dividend ETF rankings, this is easily the lowest-rated fund to get drafted here. Cost is easily the biggest driver of that and it's certainly a disadvantage, but PEY may do the best job of combining dividend growth and high yield. One of the chief complaints about dividend aristocrats (or achievers in this case) is that collectively they usually don't yield much more than 2%. This fund pushes the yield to twice that level.

This is far from a pure large-cap ETF though and investors will need to make sure that they understand that 4% yield comes with a very different risk profile than other dividend ETFs that have been drafted earlier.

Pick #13: SPDR Portfolio S&P 500 High Dividend ETF (SPYD)

Dividend ETF Rank: #2

SPDR Portfolio S&P 500 High Dividend ETF (SPYD)

Index: S&P 500 High Dividend Index

Overview: The Index is designed to measure the performance of the top 80 high dividend-yielding companies within the S&P 500 Index.

Positives: Ultra-cheap expense ratio. Equal weighting the components helps diversify some risk.

Negatives: Selecting purely on yield opens the door to include some unsavory stocks. Half of the portfolio invests in financials, utilities and REITs, giving this fund a much different look than the S&P 500.

Commentary: This is a great example of why you need to look past the numbers. A rock bottom expense ratio pushes this ETF all the way up to #2 in the rankings, but there are a lot of dividend ETFs I'd rather own before this one. I generally dislike funds that weight by dividend yield, so you can imagine how I feel about ETFs that select their components based purely on yield. The selection criteria completely ignores dividend quality, dividend sustainability or portfolio risk.

Once you get down to pick #13, you're going to have to live with some flaws. I'm not a big fan of the selection process for SPYD or the resulting portfolio, but the high yield and low expense ratio shouldn't be ignored.

Pick #14: SPDR Russell 1000 Yield Focus ETF (ONEY)

Dividend ETF Rank: #7

SPDR Russell 1000 Yield Focus ETF (ONEY)

Index: Russell 1000 Yield Focused Factor Index

Overview: The index evaluates stocks based on a series of core smart beta factors, including value, quality and size) as well as a yield focus factor. Components go through a proprietary scoring model with the top scoring names making the final cut.

Positives: The model looks at dividend quality and yield, but its additional tilt towards smaller companies and value stocks gives the fund a unique look.

Negatives: Those tilts make the fund look very different than the Russell 1000 and could respond differently to market conditions.

Commentary: This fund gives greater weights to the factors that have historically led to outperformance all in a single package. The problem right now is that some of these factors (small-caps and value stocks) have struggled for a while. Being that this fund has a foundation in the Russell 1000 and not the S&P 500, there's much more of a smaller company presence and it's not clear that the extra risk being taken with ONEY is necessarily worth it.

I do, however, appreciate an approach that tilts in a logical manner. This one certainly does that and comes at a relatively reasonable price considering what you're getting.

Post-Draft Wrap Up

Exercises like these always come with some subjective preferences and choices. Your mileage may vary and if your personal preferences differ from mine, your list could look a lot different.

In summary, I tend to favor multi-pronged strategies that consider a combination of yield, growth, quality and weighting factors. I think these often do the best job of managing risk and eliminating some of the more high risk outliers. Once you get further down the list, you have to accept that the available ETFs probably have a few warts you need to deal with, but there should be one or two positive qualities that can still make it worth the risk.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Best Energy ETFs (Updated August 2022)

David Dierking — Mon, 22 Aug 2022 13:50:21 GMT

Energy stocks have soared in 2022, but there are many ways to invest in the sector. Here are some of the best ETFs for investors!

The energy sector has been a tale of two time periods in 2022. Through June 8th, the Energy Select Sector SPDR ETF (XLE) gained 67% and was far and away the top performing sector. Since then, XLE has fallen 13% and has been the market's worst performer. It's still up 46% on the year as a whole, but it's been a big reversal.

In my last update, I said that "as crude oil and natural gas prices rise and the global markets anticipate a surge in energy demand once we begin to move past the COVID pandemic, investors have bid up energy stock prices in a way we haven't seen in years." The latter part of that statement is still true, but the former has changed. We've largely moved past COVID and travel demand has returned, but we've got a Russia/Ukraine war as part of the calculus and a potential energy crisis in Europe. The entire supply/demand curve has shifted and that's added a lot of volatility to this sector.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

There has been some significant divergence in performance over the past year. With some exceptions, it's been more of the downstream and mega-cap names (remember, ExxonMobil and Chevron account for more than 40% of the cap-weighted energy indices) that have outperformed. Infrastructure, pipeline, MLP and services stocks have generally returned "only" 30-40%, while gains of more than 100% over the past year could have been had in a few ETFs.

While investors may look at last year's rally as something they missed out on, there are still some attractive features within this space. Cash flows are huge thanks to higher energy prices and yields are far above those of the S&P 500. XLE, for example, currently offers a 3.1% yield, and is likely to remain sustainable for the foreseeable future. Volatility remains quite high, so investors won't want to pursue excessive allocations in search of yield, but a small position in order to augment existing portfolio income makes a lot of sense.

Either way, investors may look at the past year and think all of the gains have already been gotten, but there's still a lot of catch up to do when you pull back and look at the last decade.

Ranking The Energy ETFs

Methodology And Factors For Ranking ETFs

Before we dive in, let's establish a few ground rules.

Second, let's run down the factors I used in the ranking methodology.

Expense Ratio - This is perhaps the most important factor since it's the one thing investors can control. If you choose a fund that charges 0.1% annually over a fund that charges 1%, you're automatically coming out ahead by 0.9% annually. You can't control what a fund returns, but you can control what you pay for the portfolio. Lower expense ratios equal more money in your pocket.
Spreads - This relates to how cheaply you can buy and sell shares. Generally speaking, the larger the fund, the lower the spreads. Bigger funds usually have many buyers and sellers. Therefore, it's easier to find shares to transact and that makes them cheaper to trade. On the other hand, small funds tend to trade fewer shares and investors often need to pay a premium to buy and sell. Considering expense ratios and spreads together usually give you a better idea of the total cost of ownership.
Diversification - Generally speaking, the broader a portfolio is, the better chance it has at reducing overall risk. A fund, such as the Energy Select Sector SPDR ETF (XLE), provides a good example. 45% of the fund's total assets go to just two stocks - ExxonMobil and Chevron. By buying XLE, you're putting a lot of faith in just those two companies. An equal-weighted fund, such as the Invesco S&P 500 Equal Weight Energy ETF (RYE), would score higher on diversification than XLE.
FactSet ETF Scores - FactSet calculates its own proprietary ETF ranking for efficiency, tradeability and fit. They basically are designed to tell us if an ETF is doing what it sets out to do. I'm not going to copy and paste that work that they're doing, but there is some influence there to make sure my rankings are on the right path.

There are a few other minor factors thrown into the mix, but these are the main factors considered.

I'm ranking ETFs based on more basic structural factors. Are they cheap to own? Are they liquid? Do they minimize trading costs? Do they maintain risk-reducing diversification benefits?

Best Energy ETFs

There are three ETFs available that would qualify as cheap beta offerings that cover the energy sector. Not surprisingly, they come from State Street, Vanguard and Fidelity and occupy three of the top 4 spots in these rankings.

Best Energy ETFs

By the narrowest of margins, the Energy Select Sector SPDR ETF (XLE) captures the #1 spot over the Vanguard Energy ETF (VDE) and the Fidelity MSCI Energy Index ETF (FENY), which lands at #4. The last time I updated these rankings at the beginning of the year, VDE came out ahead, but it's a virtual coin toss between which is better. XLE with $37 billion in assets is easily the largest in the space and gains a minor advantage in terms of liquidity and tradeability. It's very close between these three and any of them would make a great core energy position choice.

If there's a drawback to these funds, it's that they're cap-weighted, meaning they have around 40% allocations to just ExxonMobil and Chevron. An equal-weighted energy ETF, such as the Invesco S&P 500 Equal Weight Energy ETF (RYE) at #7, might be a better diversified option.

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is the highest ranking subsector fund at #3. Oil explorer ETFs and oil services ETFs were among the best performers earlier on in the year, but it's the explorers that have hung on to and added to gains lately. XOP narrowly misses out on posting a one-year return of 100%, but has still had a very impressive year. The VanEck Oil Services ETF (OIH) is the largest fund in the latter group, coming in at #10, although the SPDR S&P Oil & Gas Equipment & Services ETF (XES) and the iShares U.S. Oil Equipment & Services ETF (IEZ) rank slightly higher.

One of the highest yielders in this space (and one of the most popular funds), the Alerian MLP ETF (AMLP), comes in way down the list at #23. With nearly $7 billion in assets, size and liquidity aren't issues, but the 0.87% expense ratio is one of the highest in the sector. The fund's 15 holdings and the top 10 comprising roughly 84% of the fund's assets get dinged for its high concentration.

Among other key ETFs in these rankings:

The four funds that hit 100%+ returns over the past year - the iShares U.S. Oil & Gas Exploration & Production ETF (IEO), the First Trust Natural Gas ETF (FCG), the Invesco Dynamic Energy Exploration & Production ETF (PXE) and the Invesco DWA Energy Momentum ETF (PXI).

The performance of the Invesco S&P SmallCap Energy ETF (PSCE) demonstrates how much small-caps, in general, have managed to come back over the latter part of the year so far. Earlier, it trailed its large-cap peers by more than 20%, but has since cut that deficit to less than 10% over the past one-year.

The Pacer American Energy Independence ETF (USAI) is one of the more unique strategies within this sector. It focuses primarily on U.S. and Canadian midstream names. Not surprisingly, it's full of companies that are big cash flow generators (as is the theme with several of the company's largest ETFs) and comes with a nice yield of nearly 4%.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Stocks Are Starting To Look Like A Trap

David Dierking — Sun, 21 Aug 2022 23:00:00 GMT

A strong dollar, low volatility and a rally on low volume look like a troublesome setup.

If you’ve been invested in U.S. equities over the past two months, congratulations! Since the mid-June low, the S&P 500 is up more than 15%. If you had your money invested in small-caps, growth, high beta or tech, you might have earned around 20%. After a long and arduous first half of 2022, it was a welcome relief rally for investors.

Now, it’s time to put it in the rearview mirror.

Following the June low, it looked like a nice little bear market rally. The average bear market rally is typically somewhere between 7-10%. During the tech bubble, rallies got as far as 20% before eventually fizzling out. On August 16th, two months to the day after the June bottom, the S&P 500 was up nearly 18%. If history is any guide, the current rally is nearing its exit velocity point. If the rally gets into the 20-25% range, there’s a good chance that it can keep pushing higher. If it stalls out at this point, there’s a lot of evidence suggesting we could be heading back towards 3700 on the S&P 500 .

The problem I see today is that most of the evidence is pointing towards a pullback in the near-term.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

The biggest catalyst at the moment might be the Fed. Much of the recent rally has been predicated on the idea that the Fed is going to pivot away from its rate hiking program in order to address the growing risk of recession that’s building. The July inflation, which ticked lower and came in below expectations, would have seemed to cement that notion. Equity investors sure believed that was the case and have continued buying with that idea in mind.

The problem is that the Fed has given no indication it’s ready to pivot. In fact, their commentary over the past couple of weeks suggests the opposite. Powell used the term “unacceptably high” to describe inflation. Other Fed governors have pretty consistently stated that inflation is not where needs to be and the central bank will continue taking a “whatever it takes” approach to bring the inflation rate down.

Does that sound like a Fed that’s ready to make a dovish pivot?

Granted, you can take what the Fed says with a grain of salt, but its members have been sending a pretty consistent message here - inflation control above all else.

Here are some other things to consider.

Utilities is the market’s strongest sector

Will get to the S&P sector technical view in a moment, but what it’s saying today is that this rally might be starting to turn. All of the attention has been focused on growth and high beta plays, but the sector with the highest relative strength at the moment is utilities.

Utilities ETF

Defensive leadership is usually a sign that a market rally is beginning to break down. Things were looking pretty strong from a market internals standpoint, but that changed about a week and a half ago. The leading market themes since that point? Utilities, low volatility and dividend growth. It could be a short-term aberration, but it’s not a trend you want to see if you’re long risk assets. Next week could be telling, but utilities leadership isn’t the only sign.

The dollar is retesting 20-year highs

The dollar usually reacts to what the Fed is expected to do. If the Fed is hawkish, which they are right now, that tends to lead to more monetary tightening. More tightening leads to higher interest rates. Higher interest rates draw more investor interest into dollar-denominated assets. More interest pushes the dollar higher. A strengthening dollar has been a hallmark of this environment for more than a year, but now it’s getting excessive.

U.S. Dollar ETF

The U.S. economy is in a comparatively better place than Europe and Asia, so it’s understandable that the dollar would be solid here, but it’s getting well into overbought territory. If you look over the past several decades, strong dollar rallies over periods of 6-12 months have correlated strongly with market peaks. Think the financial crisis, the tech bubble, the Russia debt crisis, even the leveraged buyout crisis of the late 1980s.

We’re at that point again.

Bond market volatility is rising, while the VIX is falling

The MOVE index, which measures bond market volatility, isn’t as well known as the VIX, but it’s just as, if not more, important to watch. Bond volatility tends to pick up in the early days of market downturns, including the tech bubble and the financial crisis. The MOVE index has been steadily moving higher since the first half of 2021, a six-month precursor to the 2022 bear market.

VIX Volatility ETF

The index originally peaked in June, but is now starting to head higher again. A little more and we’ll be at the highest level since 2009. Last week, the 10-year Treasury yield rose by 20 basis points and is just shy of the 3% level again. Treasury bond market volatility isn’t slowing down. Global bond yields continue to whipsaw around, the victim of a tug-of-war between central bank rate hiking and recession worries. I often say that the bond market is right more often than the stock market. I think today is no exception. All of this is happening while the VIX has been steadily falling down to 20.

If it were me, I’d be very cautious about adding to risk asset positions here. Investors tend to get caught up looking at recent returns and I think it may be contributing to a sense of complacency that’s about to catch investors off guard. Bonds, the dollar, volatility, utilities and declining trading volumes all suggest that the current stock market rally is getting tired and may be getting ready to turn.

With that being said, let’s look at the markets and some ETFs.

S&P 500 Sector Technicals Report

As mentioned, utilities is currently the markets strongest sector and it’s not particularly close. It is way into overbought territory though and probably due for a pause. Consumer staples and industrials are also doing well, but there really aren’t any major market sectors showing weakness at the moment. As it has been throughout 2022, communication services stocks remain the weakest and are an extraordinary 33% below their 52-week high.

Tech stocks underperformed for the second straight week and are threatening to end their best run since the 4th quarter of last year. The consumer discretionary sector, despite a spate of bad news from the retail sector and mega-names, such as Target and Walmart, is looking very resilient here and has yet to underperform in a meaningful way. I don’t expect this trend to continue, but there is evidence that the consumer is still in relatively good shape despite inflation problems.

S&P 500 Sector Technicals Report

The bounce in tech stocks has, again, been driven by the large- and mega-cap names. Most of the sector’s subgroups have underperformed the cap-weighted index and doesn’t necessarily suggest that the breadth of the past month is in the strongest shape. Another trend that’s continuing is weakness within the social media space, which are no longer looking like the big growth vehicles that they were once believed to be.

Monthly flow data is showing that a lot of new money still hasn’t been moving into growth sectors outside of the big sector ETFs, such as XLK, XLY and XLC. Investors appear a little less inclined to be betting on more narrow areas of the market at the moment.

S&P 500 Sector Technicals Report

The belief in a more accommodative Fed is providing a boost for cyclicals and the gains have been pretty broad-based. The banks, in particular, have done well as interest rates have struggled making a sustainable move lower in light of recession risks. The industrials sector has been the steadiest and most consistent leader of the bunch by avoiding some of the excess volatility associated with energy and commodity prices. The greatest volatility right seems to be coming from the clean energy stocks, whose 15% return over the past month has been one of the market’s best, but has come at the expense of short-term risk.

S&P 500 Sector Technicals Report

The healthcare sector has gone from outperformer to underperformer quite quickly over the past couple months. A lot of the risk could be coming from the recent Inflation Reduction Act that made its way through Congress, which has lower prescription drug prices on its agenda. Healthcare is a very headline-driven space, so it’s not surprising to see it struggling here.

Again, the utilities sector is quietly performing the best right now, a sign that risk-taking appetite is beginning to wane. The dollar has regained form and remains the global currency of choice. Given the struggles in Europe, the fact that the Chinese central bank is cutting rates and Japan is having trouble generating any economic growth, I wouldn’t be surprised to see the greenback take its current rally another leg higher.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

ETF Battles: A Stock Market Quant Scuffle Between COWZ & DSTL!

David Dierking — Fri, 19 Aug 2022 13:40:11 GMT

In this episode, it's a contest between two factor stock ETFs from Pacer and Distillate.

If you've ever wondered what I sound like in person, here's your chance! My thanks to Ron and ETF Guide for feeling that I'm qualified to appear on their show!

And there will be more to come soon in the future!

**********

Note: I'm excited to be partnering with ETF Guide to bring you their weekly web series, "ETF Battles".

ETF Guide founder, Ron DeLegge, explains that in a typical "battle", "each fund is judged against the other in key categories like cost, exposure strategy, performance and a mystery category."

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Two industry experts are brought in to debate the ETFs and eventually declare a winner.

Be sure to check out links to both ETF Guide and the judges down below! Enjoy the battle!

In this episode of ETF Battles, Ron DeLegge @ETFguide referees an audience requested contest between the Distillate U.S. Fundamental Stability & Value ETF (DSTL) and the Pacer U.S. Cash Cows 100 ETF (COWZ). Which qaunt or factor-focused ETF is the better choice?

Program judges David Dierking at TheSteet.com and Cinthia Murphy at the ETF Think Tank share their investing insights.

Each ETF is judged against the other in key categories like cost, exposure strategy, performance and a mystery category. Find out who wins the battle!

*******

ETF Battles is sponsored by: Direxion Daily Leveraged & Inverse ETFs. Know the risks. Proceed Boldly.

Visit http://www.Direxion.com

*******

CONTENT OF THIS VIDEO

0:00 Show starts here

0:43 Which ETF Battles do you wanna see?

1:12 Visit our viewer resources section

1:52 ETF Battle matchups

2:22 Judges introduced

2:40 Battle categories introduced

3:15 ETF Cost comparison

4:29 Exposure strategy analysis

7:08 ETF Performance comparison

9:05 Mystery category analysis

12:13 Judges recap their ETF winner

14:24 Final ETF Battle scorecard

14:49 Key takeaways

16:04 Visit our viewer resources section

16:20 Which ETF Battles do you wanna see?

16:31 Show conclusion

*******

Get in touch with our judges:

David Dierking (TheStreet.com) https://www.thestreet.com/etffocus/au...

Cinthia Murphy (ETF Think Tank) https://www.etfthinktank.com/team/cin...

*******

--YOUR RESOURCES FROM RON--

Margin of Safety tool: Join our waiting list http://tinyurl.com/muhwcy7s

Get Ron's weekly newsletter https://tinyurl.com/2p8bxy82

Free ETF Guides https://tinyurl.com/4uvfx4m7

Get help with your investing habits https://tinyurl.com/2xrpbzz8

Get feedback on your portfolio's risk https://tinyurl.com/cz4ahj52

#stockmarket #valueinvesting #etf

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Best Small Cap ETFs (Updated August 2022)

David Dierking — Thu, 18 Aug 2022 13:30:00 GMT

Small cap stocks combine above average growth with attractive valuations. Here are the best small cap ETFs to consider for your portfolio!

While the equity markets struggled during the first half of 2022, small-caps didn't nearly underperform in the way many thought they might. Conditions, such as the ones the world has experienced over the past year, typically lead to underperformance for small stocks, but they've largely kept pace with the S&P 500 instead. I think a big part of the reason for this is the relative value that's built up in this group over time. The P/E ratio on the Russell 2000 is roughly 30% lower than that of the S&P 500.

That's also partly why small-caps have beaten large-caps by 5% since the mid-June low. Investors pivoted towards a more optimistic tone this summer and that's contributed to riskier assets enjoying particularly outsized performance, but cheap valuations also allowed small stocks to hold even with large-caps during the downturn, but outperform during the rebound.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

It looks, however, like a recession is coming (if it isn't already here) and that could change the outlook for small-caps. The value factor that helped small-caps during the 1st half still exists and could assist again, but it looks like a matter of which asset class might perform less bad if the current economy falls into a deep recession. With a few exceptions, investors have mostly preferred large-caps over the past several years and it's possible that bias returns again over the next few quarters.

As a long-term investment, small-caps always deserve a spot in your portfolio to some degree. They are a great diversifier, obviously, and you need some of that growth potential in your portfolio. Plus, if we can navigate our way to the proverbial "soft landing", there's a case to be made that equities could really rip. With the universe of small-cap ETFs numbering more than 140 currently, there are almost countless ways to invest in this very important segment of the market.

Ranking The Small Cap ETFs

Methodology And Factors For Ranking ETFs

Before we dive in, let's establish a few ground rules.

Second, let's run down the factors I used in the ranking methodology.

Expense Ratio - This is perhaps the most important factor since it's the one thing investors can control. If you choose a fund that charges 0.1% annually over a fund that charges 1%, you're automatically coming out ahead by 0.9% annually. You can't control what a fund returns, but you can control what you pay for the portfolio. Lower expense ratios equal more money in your pocket.
Spreads - This relates to how cheaply you can buy and sell shares. Generally speaking, the larger the fund, the lower the spreads. Bigger funds usually have many buyers and sellers. Therefore, it's easier to find shares to transact and that makes them cheaper to trade. On the other hand, small funds tend to trade fewer shares and investors often need to pay a premium to buy and sell. Considering expense ratios and spreads together usually give you a better idea of the total cost of ownership.
Diversification - Generally speaking, the broader a portfolio is, the better chance it has at reducing overall risk. A fund, such as the Energy Select Sector SPDR ETF (XLE), provides a good example. 45% of the fund's total assets go to just two stocks - ExxonMobil and Chevron. By buying XLE, you're putting a lot of faith in just those two companies. An equal-weighted fund, such as the Invesco S&P 500 Equal Weight Energy ETF (RYE), would score higher on diversification than XLE.
FactSet ETF Scores - FactSet calculates its own proprietary ETF ranking for efficiency, tradeability and fit. They basically are designed to tell us if an ETF is doing what it sets out to do. I'm not going to copy and paste the work that they're doing, but there is some influence there to make sure my rankings are on the right path.

There are a few other minor factors thrown into the mix, but these are the main factors considered.

I'm ranking ETFs based on more basic structural factors. Are they cheap to own? Are they liquid? Do they minimize trading costs? Do they maintain risk-reducing diversification benefits?

Best Small Cap ETF Rankings

This first section of the rankings are mostly plain vanilla beta funds, while the sector, thematic and smart beta options tend to fall a little lower. As expected, the ultra-cheap small-cap ETFs dominate the top 10 of this list, which means you'll see plenty of Vanguard, iShares and SPDR names, but the #1 spot on this list belongs to a different issuer altogether.

Best Small Cap ETFs

The #1 spot belongs to the Schwab U.S. Small Cap ETF (SCHA), a fund that tracks the Dow Jones U.S. Small-Cap Total Stock Market Index. It's not the S&P 600 Small Cap index or the Russell 2000, but the exposure is effectively the same. It takes the top spot on the strength of its 0.04% expense ratio, the cheapest in the space and matched only by the iShares Morningstar Small Cap ETF (ISCB) and the BNY Mellon U.S. Small Cap Core Equity ETF (BKSE). Those two funds come in at #36 and #25, respectively, as their comparatively small asset sizes make trading costs higher.

The largest small cap ETF, the iShares Core S&P Small Cap ETF (IJR), a fund that tracks the S&P 600 Small Cap index, lands at #2. Its 0.06% expense ratio ranks among the cheapest in this space and its $68 billion asset base is the largest, making it incredibly cheap and liquid to trade. Vanguard owns 4 of the next 6 spots - the Vanguard Small-Cap ETF (VB) at #3, the Vanguard Russell 2000 ETF (VTWO) at #5, the Vanguard Small-Cap Value ETF (VBR) at #6 and the Vanguard Small-Cap Growth ETF (VBK) at #8. As is the case with almost every Vanguard ETF, low costs are the primary factor in its funds ranking so consistently well.

The iShares Russell 2000 ETF (IWM) is often considered the small-cap benchmark by investors, but it only comes in at #7 on this list. The big (and perhaps only) reason is its expense ratio. In a universe of ETFs where some funds are separated by razor thin margins, the 0.19% expense ratio of compares unfavorably when the rest of the top 8 come in at 0.10% or under.

In addition to SCHA, Schwab also has the Schwab International Small-Cap Equity ETF (SCHC) at #10. Usually you see the biggest, broadest and cheapest ETFs at the top of these rankings, so it's a little unusual to see a more specialized ETF like this ranking so high. Its 0.11% expense ratio certainly plays a factor, but with more than 2,000 individual stocks being held and less than 6% of assets in the top 10, diversification is very high.

Only four ETFs in the top 30 come from a fund issuer not named Vanguard, State Street, BlackRock or Schwab. I already mentioned BKSE at #25. There's also the Avantis U.S. Small Cap Value ETF (AVUV) at #23, the Dimensional U.S. Small Cap ETF (DFAS) at #27 and the Dimensional World ex-U.S. Core Equity 2 ETF (DFAX) at #28. The latter probably categorizes more like a mid-cap fund than a small-cap fund, but all three come with assets of $3-5 billion. Dimensional just brought its first ETF to market less than two years, but has amassed more than $62 billion across its lineup.

The next batch of names includes many of the "next largest" ETF issuers, including WisdomTree, Invesco, First Trust, Nuveen, ProShares and VictoryShares.

Best Small Cap ETFs

Dimensional adds several more ETFs in the middle tier of these rankings. It's worth pointing out that a lot of the issuer's success has come as a result of mutual fund-to-ETF conversions. It wasn't the first issuer to go this route - that title belongs to Guinness Atkinson - but it's certainly been the largest.

I've always been interested in the iShares Morningstar Small-Cap ETF (ISCB), the iShares Morningstar Small-Cap Growth ETF (ISCG) and the iShares Morningstar Small-Cap Value ETF (ISCV). They've got the iShares name. They all charge rock bottom expense ratios, charging between 4-6 basis points in fees. What they don't have are the assets. Combined, they have a respectable $1 billion in assets, but they've largely been lost in the shuffle. These funds overlay a proprietary screen built by Morningstar that focuses on companies with high balance sheet quality and relatively attractive valuations.

The iShares MSCI EAFE Small Cap ETF (SCZ) is easily the largest ETF in this segment of the rankings with assets of more than $10 billion, but it only lands at #37 here and is nowhere near the highest rated international small-cap ETF. The 0.40% expense ratio simply doesn't score very well in comparison to the plethora of low cost U.S.-focused ETFs available, especially those from Schwab. It does, however, score well in terms of liquidity and tradeability. If you're looking for foreign small-cap exposure, SCZ would be one to consider.

I'll point out the Nuveen ESG Small-Cap ETF (NUSC) at #34. Nuveen is not a big ETF issuer (although it's one of the biggest players in the closed-end fund space). The ESG strategy has only proven to be modestly popular. Despite this, NUSC has managed to scrap together about $1 billion in assets and has been one of the best performing small-cap ETFs over the past five years.

Down into the 60s to 80s on this list, you're getting into a lot of sector, region or theme focused funds. These won't necessarily compete with the largest and cheapest funds, since that more targeted exposure comes with a cost, but many are worth consideration in their own rights.

Best Small Cap ETFs

JPMorgan is an interesting issuer because, although they got into the ETF game late, they decided to compete on cost through a suite of targeted "BetaBuilders" ETFs. The JPMorgan BetaBuilders U.S. Small Cap Equity ETF (BBSC) is its entry into this group and at just 0.09%, it has a great chance of moving way up this list if it can achieve size and scale. The Xtrackers S&P Small Cap 600 ESG ETF (SMLE) is another low cost option at 0.15%.

I've always liked the Pacer Cash Cows series of ETFs. There's a lot of research out there that suggest companies with high free cash flows tend to outperform over time and the Pacer U.S. Small Cap Cash Cows 100 ETF (CALF) provides the exposure to that group. Pacer has been one of the industry's biggest success stories over the past couple of years and has many impressive ETFs in their lineup.

And the rest of the small cap ETF rankings:

Best Small Cap ETFs

Best Small Cap ETFs

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Investing Strategy: Single Stock & Bond ETFs: What Are They & Should You Consider Buying Them

David Dierking — Mon, 15 Aug 2022 16:30:40 GMT

These ETFs, such as the ones based on Tesla, could hold some intrigue for short-term traders.

While ETFs are known as a great way to get broad diversification in your portfolio at rock bottom prices, the latest industry trend goes decidedly in the opposite direction.

ETFs targeting just a single stock have become all the rage lately. As I write this, 20 such ETFs have been launched in just the past two months with the potential for hundreds more coming down the line.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

The obvious question may be “why would somebody invest in a single stock ETF when they can just buy the stock?” The answer is that they layer something on top of the single stock exposure. Some use an inverse strategy and the short the underlying stock. Others provide leveraged exposure. At least one uses a “hedged” strategy that adds options to limit the potential range of returns, much like the buffer ETFs that are already out there.

The SEC has gone on record with their concerns about the potential risks of single stock ETFs. In my opinion, it’s tough to argue why the SEC should reject them when it’s already approved a slew of triple-leveraged oil ETFs and other products. They have, however, limited the leverage that is being used in these ETFs. You won’t find any triple-leveraged funds here. The most we’ve seen so far is 2x exposure on Pfizer and Nike, but we’ll see if that changes down the road.

For the record, I don’t think there’s a market for these outside of short-term traders. Longer-term investors probably don’t need them since the expense ratios and the cost of leverage and need to roll over derivatives exposure on a daily basis could negate a lot of the upside of the leverage in the first place. But there are always folks who want to add a little juice to a short-term trade and these could be ideal for that purpose.

Let’s break down where we stand today with the list of available single stock ETFs.

Leveraged Single Stock ETFs

AXS 1.5X PYPL Bull Daily ETF (PYPT)
AXS 2X NKE Bull Daily ETF (NKEL)
AXS 2X PFE Bull Daily ETF (PFEL)
GraniteShares 1.25X Long Tesla Daily ETF (TSL)
GraniteShares 1.5X Long Coinbase Daily ETF (CONL)
GraniteShares 1.75X Long AAPL Daily ETF (AAPB)
Direxion Daily TSLA Bull 1.5X Shares ETF (TSLL)
Direxion Daily AAPL Bull 1.5X Shares ETF (AAPU)

So far, interest in these ETFs has been minor at best. TSLL is the largest of the group, but it’s gained only $7 million in assets. Most are still just starting off with $1-2 million. Even the 1.5X Coinbase ETF hasn’t really gotten any traction, which I find a little surprising. The stock itself has had a rough go of it lately, so I imagine that could perhaps make investors a little gun-shy. It’s still very early on and some of these ETFs are only a week old. It’s too early to draw any conclusions and these may take off yet.

You can see the relative comfort level of the SEC in approving these ETFs based on the amount of leverage allowed. Nike and Pfizer are more established blue chip names and, therefore, got a higher degree of leverage for NKEL and PFEL. Apple and PayPal being slightly more volatile tech names got a little less. I’m a little surprised that CONL and TSSL got approved for 1.5X exposure given how volatile they are. The expense ratios on the Direxion and GraniteShares ETFs are 0.97% and 1.15%, respectively, so these products are not necessarily cheap to own and hold.

Inverse Single Stock ETFs

AXS 1.5X PYPL Bear Daily ETF (PYPS)
AXS 2X NKE Bear Daily ETF (NKEQ)
AXS 2X PFE Bear Daily ETF (PFES)
AXS TSLA Bear Daily ETF (TSLQ)
AXS 1.25X NVDA Bear Daily ETF (NVDS)
GraniteShares 1X Short Tesla Daily ETF (TSLI)
Direxion Daily TSLA Bear 1X Shares ETF (TSLS)
Direxion Daily AAPL Bear 1X Shares ETF (AAPD)

Most of the long ETFs listed above have short counterparts. AXS opted for short-only versions of their Tesla and NVIDIA ETFs. TSLQ, TSLI and TSLS are essentially identical in their exposures. NVDS has just a little bit of short leverage to provide some extra downside. The AXS funds are really the only ones that offer more meaningful leverage on the inverse side.

Hedged Single Stock ETFs

Innovator Hedged TSLA Strategy ETF (TSLH)

As mentioned earlier, TSLH is the more unique ETF of the group in that it combines an options strategy on top of Tesla to put a cap on gains and a floor on returns. On a quarterly basis, the cap on positive returns is 9.29% with the floor on losses set at 10%. Tesla can obviously have swings like that on a daily basis, but for people who want to take a swing at owning Tesla but also protect themselves from severe losses, this could be an option.

The buffer ETFs (also offered by Innovator among others) have built up more than $16 billion in assets, so there’s definitely a market for these products. We’ll see if the buffer ETF concept for indexes translates over to a similar strategy for single stocks, but there’s reason to think it might.

Single Bond ETFs

U.S. Treasury 3 Month Bill ETF (TBIL)
U.S. Treasury 2 Year Note ETF (UTWO)
U.S. Treasury 10 Year Note ETF (UTEN)

These ETFs I find really interesting. Whereas a lot of fixed income funds hold potentially thousands of different bonds, these hold one single bond - the latest issue of U.S. government bonds at these maturities. It’s as close as you’ll get to owning the actual bond without actually owning it.

The benefit of these, using UTEN as an example, is that they will own the most recent 10-year note, but then roll it over into the newest 10-year note when it’s issued. You’re essentially getting consistent 10-year note exposure. If you buy an individual government bond, the remaining maturity changes over time as does its interest rate risk. These ETFs will maintain ongoing exposure to the newest issued bonds and shareholders won’t have to do a thing.

Each comes with an expense ratio of 0.15%, so they’re relatively cheap to own as well. Investors have already responded positively with TBIL and UTEN already having more than $20 million in assets each.

Conclusion

I can see two things happening with single stock ETFs - 1) dozens, if not hundreds, of these ETFs could eventually be launched and 2) most of them will gain almost no interest. The only ones that are likely going to be winners in terms of assets are going to be the ones based on “buzzy” stocks, such as Tesla or Netflix or Twitter or some of the FAAMG names. Anything else is probably going to be DOA. Is anybody really looking for leveraged exposure on Pfizer in an ETF?

I see single stock ETFs going in four directions - leveraged, inverse, buffer and covered calls. The first three have been launched already. The fourth one has yet to debut, but I think it’s coming. An ETF that owns Microsoft, for example, and writes calls based on Microsoft stock I think could be an interesting strategy. High yield investors could be intrigued with capturing a 5%+ yield with equity exposure much like they have with other covered call ETFs.

In short, I think these are certainly unique and probably fill a gap or some investors, but not many. These will be for traders, but longer-term investors probably won’t have much use for them. I think a lot of these could eventually be closed due to lack of interest. It’s only been two months and we’ve already got 6 ETFs based on Tesla. Not all of them are going to survive and this space could get watered down quickly.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Best Vanguard Bond ETFs (Updated August 2022)

David Dierking — Thu, 11 Aug 2022 13:30:00 GMT

Vanguard offers a number of high quality bond ETFs for income-seeking investors. Here are the best of the best.

At the beginning of August, the Vanguard Total Bond Market ETF (BND) passed the iShares Core U.S. Aggregate Bond ETF (AGG) to become the largest bond ETF in the world. What's impressive about this feat is that BND trailed AGG by $8 billion just at the beginning of 2022. It's also nearly doubled up AGG on net inflows over the past 3 years, so it seems likely that BND will be there to stay.

Plus, Vanguard also owns the next four largest bond ETFs after that.

Vanguard is one of the premier issuers of fixed income ETFs. Like its suite of stock ETFs, the company builds its lineup through broad, diversified and low-cost market and sector exposures. Government or corporate, short-term or long-term, taxable or muni - Vanguard is truly a one-stop shop for filling out your bond portfolio.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Out of 20 bond ETFs, all but three of them come with an expense ratio of 0.07% or less. Especially when it comes to retirement investing, lower expense ratios mean higher yields and that means more money in your pocket. Just as advantageous is the fact that all but 4 of the 20 have assets of at least $2 billion. In many cases, that means trading costs are also razor thin. I preach all the time about looking at the total cost of ownership of ETFs (expense ratio + trading costs). No ETF issuer may offer a better cost advantage than Vanguard.

As I discuss with the Vanguard Stock ETF rankings, there are some disadvantages to dumping bond ETFs of all styles and target markets into one bucket. That's less of an issue in the fixed income space since the vast majority of funds invest in hundreds, if not thousands, of individual bonds. If a low volatility stock ETF, for example, holds 50-100 names and a total stock market ETF has more than 1,000 stocks, the latter will hold a distinct diversification advantage. In the bond ETF world, diversification is less of an issue since most of them are highly diversified.

That puts bond ETFs, in general, on more of an even playing field. It also means that cost and liquidity become bigger factors than with stock ETFs. As we'll see with any of these ranking lists, the low cost cream tends to rise to the top. While some Vanguard bond ETFs will fall lower on this list because they're being measured against other ultra-low cost ETFs, it's important to remember that they will all likely rank very highly within their respective peer groups. There's not a bad bond fund to be found in the Vanguard lineup!

Ranking The Vanguard ETFs

Vanguard ETFs

Methodology & Factors For Ranking ETFs

Before we dive in, let's establish a few ground rules.

Second, let's run down the factors I used in the ranking methodology.

Expense Ratio - This is perhaps the most important factor since it's the one thing investors can control. If you choose a fund that charges 0.1% per year over a fund that charges 1%, you're automatically coming out ahead by 0.9% annually. You can't control what a fund returns, but you can control what you pay for the portfolio. Lower expense ratios equal more money in your pocket.
Spreads - This relates to how cheaply you can buy and sell shares. Generally speaking, the larger the fund, the lower the spreads. Bigger funds usually have many buyers and sellers. Therefore, it's easier to find shares to transact and that makes them cheaper to trade. On the other hand, small funds tend to trade fewer shares and investors often need to pay a premium to buy and sell. Considering expense ratios and spreads together usually give you a better idea of the total cost of ownership.
Diversification - Generally speaking, the broader a portfolio is, the better chance it has at reducing overall risk. A fund, such as the Energy Select Sector SPDR ETF (XLE), provides a good example. 45% of the fund's total assets go to just two stocks - ExxonMobil and Chevron. By buying XLE, you're putting a lot of faith in just those two companies. An equal-weighted fund, such as the Invesco S&P 500 Equal Weight Energy ETF (RYE), would score higher on diversification than XLE.
FactSet ETF Scores - FactSet calculates its own proprietary ETF ranking for efficiency, tradeability and fit. They basically are designed to tell us if an ETF is doing what it sets out to do. I'm not going to copy and paste that work that they're doing, but there is some influence there to make sure my rankings are on the right path.

There are a few other minor factors thrown into the mix, but these are the main factors considered.

I'm ranking ETFs based on more basic structural factors. Are they cheap to own? Are they liquid? Do they minimize trading costs? Do they maintain risk-reducing diversification benefits?

Best Vanguard Bond ETF Rankings

More than half of the Vanguard bond ETF lineup comes with an expense ratio between 0.03% and 0.05%. That means the differences between these ETFs are razor-thin on a purely quantitative basis. Choosing a specific fund on this list will likely depend more on what kind of exposure you're looking for, but there are a lot of great choices.

Best Vanguard Bond ETFs

Vanguard Total Market Bond ETFs

Total MarketLet's start with the total bond market ETFs first. As mentioned above, BND just became the largest bond ETF in the marketplace and comes in at #2 on this list. While this ETF would be a top-shelf choice for broad U.S. bond market coverage, it's important to call out a few minor nitpicks about it. First, BND is comprised of about 2/3 U.S. Treasuries. If you're looking for more diverse coverage, you might want to tilt a little more towards 50/50. BND would be a great position, but you could consider augmenting it with a fund, such as the Vanguard Total Corporate Bond ETF (VTC). Two other areas it doesn't cover include foreign bonds and high yield bonds. Again, you'd need to add another ETF if you want to add that exposure in.

The first problem can be addressed with the Vanguard Total World Bond ETF (BNDW). It's a 50/50 split between BND and the Vanguard Total International Bond ETF (BNDX). BNDX's exposure consists mostly of bonds from developed markets, but has a minor allocation to emerging markets bonds. Like BND, it includes no junk bonds.

Vanguard also offers investors the ability to control the maturities of their bond holdings as well. The Vanguard Long-Term Bond ETF (BLV), the Vanguard Intermediate-Term Bond ETF (BIV) and the Vanguard Short-Term Bond ETF (BSV) come with varying degrees of yield and duration risk. It's worth noting also that the longer-term bond ETFs offer more corporate bond exposure mixed with Treasuries.

I'm going to highlight the Vanguard Ultra-Short Bond ETF (VUSB) separately because it's a bit unique. Yes, it ranks #20 out of 20 bond ETFs, but that's not what I'm interested in (the slightly higher expense ratio is almost certainly the culprit). It's the only actively-managed bond ETF in the Vanguard lineup. Does that give it an advantage? Probably not, but if you can get an actively managed bond portfolio for nearly the same price as an index fund, is there really a downside? I do think it works nicely as a cash alternative option and its 3.1% yield is certainly attractive, but its -1% year-to-date total return demonstrates that there is a risk to any bond ETF.

Vanguard Government Bond ETFs

Vanguard's Treasury ETFs come in four different tenors - the Vanguard Short-Term Treasury ETF (VGSH), the Vanguard Intermediate-Term Treasury ETF (VGIT), the Vanguard Long-Term Treasury ETF (VGLT) and the Vanguard Extended Duration Treasury ETF (EDV). The first three are fairly self-explanatory, while EDV extends about as far out on the maturity spectrum as you'll find. VGLT, for example, holds a diverse set of bonds with maturities of between 15-30 years. EDV splits its portfolio 50/50 between bonds with 20-25 year maturities and 25+ year maturities. VGLT has a duration of 17 years, but EDV's is more than 24 years. In short, EDV is about as volatile and interest rate sensitive a Treasury bond ETF as is available anywhere.

The other is the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP). This tends to be on the more defensive end of the spectrum and only invests in notes with maturities of 5 years or less. Not surprisingly, it's been a popular fund lately and has doubled in size since the beginning of 2021.

Vanguard Corporate Bond ETFs

We probably don't need to spend a whole lot of time on the corporate bond ETF lineup since it's very similar to the government bond fund list with the obvious exception of what it's buying.

The Vanguard Short-Term Corporate Bond ETF (VCSH), the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and the Vanguard Long-Term Corporate Bond ETF (VCLT) all invest in investment-grade corporates of various maturities from less than one year all the way up to 25+ years.

One unique addition to this part of the lineup is the Vanguard ESG U.S. Corporate Bond ETF (VCEB). It invests in bonds of all maturities, but generally sticks in the short- to intermediate-term range. According to the fund website, it "specifically excludes bonds of companies that the index sponsor determines engage in, have a specified level of involvement in, and/or derive threshold amounts of revenue from certain activities or business segments related to the following: adult entertainment, alcohol, gambling, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear power, and thermal coal, oil, or gas." It will also exclude the bonds of companies that don't meet certain standards, such as diversity or other controversies.

Others

Two other ETFs I'll mention are the Vanguard Tax-Exempt Bond ETF (VTEB) and the Vanguard Mortgage-Backed Securities ETF (VMBS). The former invests in investment-grade munis of all maturities, while the latter targets MBS securities issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). It typically maintains an average maturity of 3 to 10 years.

One thing that's noticeably absent from the Vanguard lineup is a high yield bond fund. Could we see one launched at some point in the future? Possibly, but I wouldn't count on it. They probably would have done it already if they really wanted to and junk bonds may not be considered a typical Vanguard product.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Retirement Strategy: 5 ETFs For Safely Adding A 7% Yield To Your Portfolio

David Dierking — Wed, 10 Aug 2022 13:30:00 GMT

If added smartly, these ETFs can be great opportunities to boost your retirement income.

The income investing landscape for retirees has improved somewhat throughout 2022. Granted, that's come on the heels of falling stock and bond prices, but available yield opportunities in both markets today are becoming more attractive.

This is especially true on the fixed income side. For example, 10-year Treasuries, which were yielding a scant 0.5% a little over two years ago, touched the 3% level in July. Even 3-month Treasury bills, which yielded next to nothing, can be purchased today with a yield north of 2.5%. Existing shareholders have had a rough ride over the past year, but the yield/risk tradeoff today is much improved.

On the equity side, the S&P 500 and the dividend aristocrats are still only offering 1.5% to 2% yields, but ETFs that focus more on high yielders, such as the iShares Select Dividend ETF (DVY) or the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD), are currently paying 3.5% to 4% annually.

Retirees and income seekers no longer need to venture far out on the risk spectrum to capture a reasonable yield.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Reaching for HIGH yields, I'm talking in the range of 7% or more, usually comes with inherently more risk regardless of the environment. These should always be approached with caution and a level of skepticism before jumping in. That's not to say that stocks or ETFs that offer high yields are inappropriate by any stretch, but investors should be well aware of the risks and downside that come with them.

When researched properly and added to a portfolio smartly, however, they can be great yield-enhancing opportunities. Each takes a bit of a different approach to yield generation. Some use options strategies. One targets liquid alternative asset classes. None of these are highly speculative home run swings, but investors should understand what's under the hood before taking them for a test drive.

For that reason, I'm going to discuss 5 ETFs that currently offer at least a 7% forward-looking yield that I think are worth considering for your retirement portfolio.

High Yield ETFs For Retirement Portfolios

Let's break them down.

Nationwide Nasdaq 100 Risk Managed Income ETF (NUSI)

Nationwide Nasdaq 100 Risk Managed Income ETF (NUSI) Profile

When it comes to high yield ETF choices, NUSI is a fund I bring up often. Its 7.8% yield is the biggest selling point, but the real key could be the options collar strategy that reduces volatility and downside risk, especially in the current market environment.

To start, NUSI fully replicates the Nasdaq 100 as the core position in the portfolio. From there it layers on a combination of written call options with purchased put options on the index. These options positions are intended to generate a "net credit" position, meaning that the premiums received from the written calls outweigh the premiums paid for the puts. The dividend income received from the underlying Nasdaq 100 investment is relatively small. It's the options income that generates the big yield.

Benefits of Investing in NUSI

It's important to understand that those options positions alter NUSI's risk/return profile. The puts protect against some level of downside risk, but the written calls also put a cap on upside potential. Think of it as the options collar limiting the range of returns on both ends in exchange for the high yield.

NUSI has struggled in 2022. The core Nasdaq 100 investment has declined by about 20% and the options collar has failed to help out much. The monthly income (another advantage of NUSI) has declined in recent months, probably a function of puts becoming much more expensive and calls becoming less so. The downside risk hedge, however, has still been effective. Over the past year, NUSI has only experienced about 85% of the downside of the Nasdaq 100.

As a pure income option, however, the high yield/managed risk aspect of the fund is attractive. There are also options investing in the S&P 500 (NSPI), the Dow 30 (NDJI) and the Russell 2000 (NTKI).

JPMorgan Equity Premium Income ETF (JEPI)

JPMorgan Equity Premium Income ETF (JEPI) Profile

Here's another of my favorite high income ETFs. With more than $11 billion in assets, this one has gotten a lot of attention and become a big hit with income seekers. Fundamentally, its strategy is pretty straightforward and simple (although the execution of it is a bit unique). JEPI quotes an extraordinary 12% yield right now. Historically, the fund has paid somewhere in the range of around 8% and is probably where investors should expect it over the long-term. The 12% yield is nice for now, but probably unsustainable.

JEPI is more of your traditional covered call strategy and consists of two parts. The first sleeve is a core portfolio of low volatility stocks that are mostly, if not entirely, from the S&P 500. Right now, the fund maintains about 100 holdings with volatility levels about 30% less than that of the S&P 500. Like NUSI, JEPI pays out distributions on a monthly basis.

The second sleeve involves the covered calls. To accomplish this, JEPI invests in equity-linked notes (ELNs), which are essentially a position in the S&P 500 with the written call option all rolled into a single security. It's a little unusual to approach covered call strategies in this manner, although I think it's a minor nitpick. Overall, JEPI invests 80% in low volatility stocks and 20% in ELNs.

JEPI is just over two years old, so there's not a lot of history to work with, but we can see a distinct trend where the fund underperforms when stocks are doing well but outperforms when stocks are weak. Year-to-date, JEPI is beating the S&P 500 by 8%.

Strategy Shares Nasdaq 7HANDL Index ETF (HNDL)

Strategy Shares Nasdaq 7HANDL Index ETF (HNDL) Profile

HNDL is one of the most fully diverse ETFs you'll find. It's a fund-of-funds that holds positions in 19 different ETFs, including stocks, fixed income, preferreds, covered calls, REITs and munis among others. While it doesn't maintain a target allocation, its current allocation is about 50% fixed income, 40% equities and 10% alternatives.

HNDL ETF Investing Strategy

HNDL builds its portfolio by splitting it into two pieces - a "core" portfolio, which is more a standard mix of equity and fixed income ETFs, and an "explore" portfolio, which employs a tactical allocation across stocks, bonds and alternatives that traditionally offer high yields. On top of all that, HNDL uses leverage of approximately 23% of total net assets in order to enhance total return and yield potential.

The "7HANDL" part of the ETF's name come from its distribution plan, where it pays shareholders an annualized 7% target yield split into monthly payments. In that way, the monthly distribution is tied to the fund's share price. As HNDL's share price rises, so too does the monthly payment. As prices decline, as they have in 2020, the distribution falls.

One thing to keep in mind with this ETF is that since its distributions can consist of returns of capital. If the fund isn't able to generate the income or capital gains necessary to meet the 7% annualized yield target, it needs to take fund assets to make up the difference. Essentially, it's giving you your own investment back as a distribution. Reductions in the fund's asset base due to things like this can reduce the NAV over time if it happens consistently. Some closed-end funds run into this issue if they overdistribute, which results in steadily declining share prices. According to the fund's latest annual report, there was a very minor return of capital distribution made. It's not a problem at this point, but something to be aware of.

Pacer Metaurus U.S. Large Cap Dividend Multiplier 400 ETF (QDPL)

Pacer Metaurus U.S. Large Cap Dividend Multiplier 400 ETF (QDPL) Profile

Pacer has had a blockbuster year and is one of the true up-and-comers in the ETF industry. Its foundation is the Pacer U.S. Cash Cows 100 ETF (COWZ), which focuses on major cash flow generating companies and has been a huge outperformer this year. Less known within the Pacer lineup is this ETF, which aims to quadruple the yield on the S&P 500.

QDPL ETF Investing Strategy

QDPL kind of has the profile of a covered call ETF, but goes about it in a different. It essentially reduces its exposure to the S&P 500 and then uses those funds to amplify its dividend exposure by purchasing futures contracts. What you end up with is a portfolio whose price action is roughly 88% correlated to the underlying S&P 500 index but whose dividend yield is 4 times higher. As it stands today, that distribution yield is 7.2%.

This is actually a pretty interesting way to approach high yield generation on top of an all-equity portfolio. In a traditional covered call strategy, you can typically give up 50% to even nearly 100% of share price upside depending on how much options coverage you want to layer on and how high of a yield you want to target. You can have more extreme cases, such as the Global X covered call ETFs, where they offer 12% yields, but write options on the entire fund. QDPL offers a more modest 7%, but still gives you 88% of the share price upside. Over the long-term, that strategy probably has a higher chance of paying off.

If you're looking for something in between QDPL and the S&P 500, there's the Pacer Metaurus U.S. Large Cap Dividend Multiplier 300 ETF (TRPL). It offers triple the yield on the S&P 500, around 5.4% currently, but 92% of S&P 500 index exposure.

GraniteShares HIPS U.S. High Income ETF (HIPS)

GraniteShares HIPS U.S. High Income ETF (HIPS) Profile

HIPS is much different than any of the other four ETFs mentioned so far. It doesn't use an options or futures based strategy. It simply invests in areas of the market that are typically known for their above average yields. The fund's holdings typically come from one of four segments - REITs, BDCs, MLPs and closed-end funds. The latter group is the largest, accounting for about half of the fund's assets.

HIPS ETF Investing Strategy

Because it invests in these alternative asset classes, it does perhaps the best job of diversifying away portfolio risk. Over the past five years, this ETF has spent more time being negatively correlated to the S&P 500 than positively. That means this fund could go down when stocks are rising and vice versa, but the overall effect on the portfolio is lower risk and lower volatility. Add in a current yield that's around 8.5% and that can be a great addition to a retirement portfolio.

On its own, HIPS is about 30-50% more volatile on a daily than the S&P 500, depending on the time frame. It can be a bit more of a wild ride in isolation, but when paired with a traditional stock/bond portfolio in moderation, it can be a great way to get a yield while potentially reducing overall portfolio risk.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Best Vanguard Stock ETFs (Updated August 2022)

David Dierking — Mon, 08 Aug 2022 13:30:00 GMT

Vanguard offers dozens of highly-rated ETFs for investors. Here are the best of the best.

When it comes to investing in ETFs, the first place that many people turn to is Vanguard. With nearly $2 trillion in assets, it's the 2nd largest ETF issuer behind only BlackRock's iShares family of funds.

The reason why is pretty simple. No matter what category, theme or strategy an investor considers, Vanguard probably offers some of the cheapest ETFs available in that space. Of the 62 equity ETFs that Vanguard currently offers, 45 of them come with expense ratios of 0.10% or less.

Another thing that Vanguard has that works to its advantage is simplicity. They specialize in offering broad-based portfolio that mostly fit into one of four categories

Market Cap
Sector
Value/Growth
Dividends

Vanguard also recently began offering ESG versions of two broad market ETFs - the Vanguard ESG U.S. Stock ETF (ESGV) and the Vanguard ESG International Stock ETF (VSGX) - for those interested in socially responsible investing.

The only real unique part of the Vanguard equity ETF lineup is its 6 ETF suite of factor ETFs, which were launched back in 2018. They're unique because they seem so un-Vanguard-like. First of all, they're factor ETFs. This is something that the company hasn't offered in the past and is a step apart from their typical broad-based ETF strategy. Second, they're actively-managed and the only such funds in the Vanguard lineup that aren't index-based. They're definitely an outlier and something I'll discuss a little later as we get into the rankings.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

For core portfolio investing, Vanguard is simply one of the best. I talk often about how the best portfolios are built around ETFs that offer broad market coverage, are highly liquid and dirt cheap. With the exception of the factor ETFs, every fund in the Vanguard lineup has at least $500 million in assets, which is more than enough to make trading easy. Some of the smaller ETFs have trading spreads that are a little higher than I'd like to see, but almost every Vanguard ETFs checks all the boxes.

Ranking every Vanguard stock ETF comes with a bit of an asterisk since we're measuring funds that invest in so many markets. Broad market ETFs, such as the Vanguard S&P 500 ETF (VOO) or the Vanguard Total Stock Market ETF (VTI), generally come with slightly lower fees, which gives them an advantage over something like the Vanguard Financials ETF (VFH). We'll see this "broader is better" theme once we start digging into the rankings, but the majority of these ETFs would probably rank pretty highly, if not at #1, within their own peer groups.

Ranking The Vanguard ETFs

Vanguard ETFs

Methodology & Factors For Ranking ETFs

Before we dive in, let's establish a few ground rules.

Second, let's run down the factors I used in the ranking methodology.

Expense Ratio - This is perhaps the most important factor since it's the one thing investors can control. If you choose a fund that charges 0.1% per year over a fund that charges 1%, you're automatically coming out ahead by 0.9% annually. You can't control what a fund returns, but you can control what you pay for the portfolio. Lower expense ratios equal more money in your pocket.
Spreads - This relates to how cheaply you can buy and sell shares. Generally speaking, the larger the fund, the lower the spreads. Bigger funds usually have many buyers and sellers. Therefore, it's easier to find shares to transact and that makes them cheaper to trade. On the other hand, small funds tend to trade fewer shares and investors often need to pay a premium to buy and sell. Considering expense ratios and spreads together usually give you a better idea of the total cost of ownership.
Diversification - Generally speaking, the broader a portfolio is, the better chance it has at reducing overall risk. A fund, such as the Energy Select Sector SPDR ETF (XLE), provides a good example. 45% of the fund's total assets go to just two stocks - ExxonMobil and Chevron. By buying XLE, you're putting a lot of faith in just those two companies. An equal-weighted fund, such as the Invesco S&P 500 Equal Weight Energy ETF (RYE), would score higher on diversification than XLE.
FactSet ETF Scores - FactSet calculates its own proprietary ETF ranking for efficiency, tradeability and fit. They basically are designed to tell us if an ETF is doing what it sets out to do. I'm not going to copy and paste that work that they're doing, but there is some influence there to make sure my rankings are on the right path.

There are a few other minor factors thrown into the mix, but these are the main factors considered.

I'm ranking ETFs based on more basic structural factors. Are they cheap to own? Are they liquid? Do they minimize trading costs? Do they maintain risk-reducing diversification benefits?

Best Vanguard Stock ETF Rankings

In very Vanguard fashion, every one of the top 30 ETFs has an expense ratio of 0.10% or less and the top 12 are all in the single digits. As is the case with many of my ETF rankings, the low cost cream rises to the top, including Vanguard's two ETF giants.

Best Vanguard Stock ETFs

You may be expecting the Vanguard S&P 500 ETF (VOO) to take the top spot, but it's the Vanguard Total Stock Market ETF (VTI) that lands at #1. I've gone on the record in the past about how I feel that total market ETFs are better than S&P 500 ETFs due to their more expansive market coverage (even though VTI is still 88% large-cap). Don't feel too bad for VOO though. It's seen the greatest net inflows year-to-date of any ETF, adding more than $30 billion.

The Vanguard Mid-Cap ETF (VO) at #2 is a bit interesting. When people talk stocks, they usually discuss it in terms of large-caps vs. small-caps. Mid-caps usually get left out of the discussion, although they've delivered some pretty good risk-adjusted returns in their own right. The fund does have more than $50 billion in assets, a tiny 0.04% expense ratio and has the liquidity and diversification that earns it some bonus points.

If you're viewing these rankings in terms of value/growth, the Vanguard Growth ETF (VUG) at #7 is the only such fund in the latter category to land in the top 10. That compares to three value ETFs - the Vanguard Value ETF (VTV) at #4, the Vanguard Mega-Cap Value ETF (MGV) at #8 and the Vanguard Mid-Cap Value ETF (VOE) at #10. You'd have to slide all the way down to the Vanguard Mid-Cap Growth ETF (VOT) at #17 to find the next growth-tilted ETF. This isn't necessarily an indictment of growth ETFs, in general. These ETFs are grouped pretty tightly to begin with and these rankings are based on the numbers, not the style or performance.

Vanguard's two headline dividend ETFs - the Vanguard High Dividend Yield ETF (VYM) and the Vanguard Dividend Appreciation ETF (VIG) - come in at #6 and #12, respectively. If you check out my dividend ETF rankings, VYM currently lands at #1 and VIG at #3, an indication of how highly rated these funds really are. Their international counterparts - the Vanguard International High Dividend Yield ETF (VYMI) and the Vanguard International Dividend Appreciation ETF (VIGI) - land much lower on this list at #53 and #57, respectively, but they are perhaps the two best international dividend ETFs out there.

Elsewhere on the list, the Vanguard Total World Stock ETF (VT) is ideal for those truly looking for complete global equity exposure. It's got U.S., developed and emerging markets stocks across large-, mid- and small-caps. The Vanguard Utilities Sector ETF (VPU) is the company's highest-rated sector ETF, although many of them are bunched together in that same area. Since 8 of the sector ETFs fall within a 9-spot range on these rankings, they're effectively the same structurally with their targeted sector being the only difference.

Best Vanguard Stock ETFs

Here's where you start seeing a lot of Vanguard's other non-U.S. and non-beta offerings. By this, I mean ESG, developed & emerging markets and factor ETFs. Most of these do an effective job at offering exposure to their target markets, but they also come in with slightly higher expense ratios based on how they're investing. That will ding some of these funds when compared to ETFs charging just 3-4 basis points, but it's important to remember that most of them rank quite highly when measured against their direct peers. It's a great example of how Vanguard offers so many great, ultra-low cost ETFs in their lineup.

Vanguard made headlines when it decided to launch the Vanguard ESG U.S. Stock ETF (ESGV) and the Vanguard ESG International Stock ETF (VSGX). To date, they've been modest successes by Vanguard's lofty standards. ESGV ranks a respectable #33, but VSGX comes in at #59 out of 62 ETFs. Both carry the typical low expense ratio and have netted a combined $9 billion, but they've been far from runaway successes. Part of that is due to the fact that ESG investing, in general, has generated moderate interest, but hasn't been the next big thing that many thought it would be. The pair have brought in a net $1.2 billion year-to-date, so they're still growing, but I have doubts that they'll ever be a major part of the Vanguard ETF lineup.

Vanguard's three big international ETFs - the Vanguard Total International Stock ETF (VXUS), the Vanguard FTSE Developed Markets ETF (VEA) and the Vanguard FTSE Emerging Markets ETF (VWO) - all land in the 2nd half of the Vanguard ETF rankings. I don't view this as a condemnation of these funds, but more one of the inherent weaknesses that comes from grouping ETFs with a number of different target markets into a single bucket. International stock funds almost always come with higher expense ratios than their U.S. counterparts, one of the reasons these funds end up ranking lower, and their tradeability scores tend to be lower as well. In more traditional international equity ETF rankings, I imagine they'd very likely land in the top 10.

Best Vanguard Stock ETFs

I'm just going to take a moment here to discuss Vanguard's factor ETFs, which I mentioned earlier. The group includes the Vanguard U.S. Value Factor ETF (VFVA), the Vanguard U.S. Momentum Factor ETF (VFMO), the Vanguard U.S. Quality Factor ETF (VFQY), the Vanguard U.S. Minimum Volatility ETF (VFMV), the Vanguard U.S. Liquidity Factor ETF (VFLQ) and the all-encompassing Vanguard U.S. Multifactor ETF (VFMF). VFVA is the highest ranking of this group at #49. The latter trio hold the bottom three spots.

This group has been one of Vanguard's rare disappointments. These ETFs launched more than 4 years ago when factor and smart beta investing got a little more attention. Even though they were unique compared to the rest of Vanguard's lineup, they were viewed future winners since, well, almost everything Vanguard touches turns to gold.

Not this time though. After all this time, the group collectively accounts for just $1.4 billion in assets, about half of which is in VFVA. To put that into perspective, VOO trades about $1.7 billion worth of shares every day. I don't think these are bad funds, more underutilized than anything. Their 0.13% expense ratios are certainly attractive compared to the rest of the marketplace (especially for actively-managed funds). Their strategies make logical sense. I don't think there's any reason to avoid them if thematic exposure is what you're looking for.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

If You've Gotten Out Of The Market, You'd Better Have A Plan For Getting Back In!

David Dierking — Sun, 07 Aug 2022 23:27:01 GMT

Selling without any plan to buy back again at some point in the future is a recipe for missed opportunities.

The S&P 500 returned more than 9% in July. That’s great news for investors who watched stocks decline more than 20% earlier this year. Many, however, don’t have anything to celebrate because they didn’t capture those returns. They got out of the markets at or around the time when stocks were near their lowest. That, my friends, is the inherent risk of making emotional investment decisions.

Multiple studies have aimed to assess stock market returns vs. actual investor returns. Most of them tell a similar story, including this one.

S&P 500 Returns vs. Investor Returns

This one is a little out-of-date, so the short-term returns aren’t indicative of what’s going on today, but you get the picture. Over the long-term, the average investor only experiences about half of the return of the S&P 500.

Why such a disparity between the two? Emotional investment decision making. A lot of investors decide to sell only after losses have been experienced and miss out on the subsequent rebound. I have a family member who decided to sell her entire portfolio and move into cash at the depths of the COVID recession, after stocks had already declined by 30%. She never got back in and is still holding all cash today.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Her quote after missing out on the recovery and the 100%+ returns since the 2020 bottom - “well, it’s probably too late to get in now”. Now that stocks are 15-20% below their highs, it’s another opportunity to get back in at bargain prices, right? Nope. She’s back to panic again. At this point, I have doubts that she’ll ever get out of cash again.

Many investors forget that trading is a two-way transaction. In a situation like this, for every sell, there has to be a buy. If you’re going to sell your stocks, you have to buy back at a level below your initial sell price in order for the trade to be successful. Unfortunately, many investors are quick to hit the sell button and then completely forget about it. If you’re going to sell, you NEED to have a plan to get back in in order to make the sell even worth it in the first place.

This family member of mine sold 100% of her stocks and never thought about it again. She’s turned temporary losses into permanent missed opportunities.

Many short-term traders will establish two price targets for their trades - one is a target for when to buy back in that they think will capture the gain to be had (e.g. 3-5% below the sell price) and a stop loss price, a level above their original sell price at which they’ll cut bait on a losing trade. Both provide firm limits on a trade - a level of acceptable returns and level of limited losses.

The average investor would do well to follow a similar style. If you’re going to sell equities here, establish a price at which you’ll plan to buy back and lock in a successful trade. Using the example above, you can set a buy price of 5% below where you sold and strictly follow it. Sure, stocks may fall an additional 10% beyond that. No one knows where the bottom will be and it’s pointless to try to figure it out. Even if that happens, you’ve effectively avoided 5% in losses. Regardless of what happens next, that’s a successful trade!

The broader point I’m trying to make here is that you should always monitor your portfolio. Shift your expectations as conditions shift. The COVID bear market in 2020 is a perfect example of that. After stocks had dropped 30% very quickly, the government passed a multi-trillion dollar stimulus package designed to support both individuals and businesses. In hindsight, that would have been the trigger point to get back in. The markets love lots of liquidity & ultra-loose monetary conditions and we see what happened to stock prices since that point.

Always remember to think of the long game on any trade. Selling without any plan to buy back again at some point in the future is a recipe for missed opportunities. Stocks are still down 20% from their highs in many areas of the market. Now would be the time to think about what the future could look like instead of the past.

With that being said, let’s look at the markets and some ETFs.

S&P 500 Sector Technicals

The July stock market rally (which has so far carried into August) has been the rising tide that’s lifted all boats, but it’s the riskiest growth areas of the market that have benefited the most. Tech and consumer discretionary stocks have been the headline sectors leading the markets higher over the past few weeks, but it’s the oft-forgotten industrials sector that is demonstrating the greatest relative strength at the moment. This is probably more a reflection of sentiment than actual conditions. The factory and manufacturing segment of the market is still in positive growth territory for now, but it’s trending lower and probably heading into contraction soon.

The three highest RSIs at the moment are in industrials, tech and utilities. That’s one growth, one cyclical and one defensive sector. It’s a curiosity to see such a diverse trio leading the way and is an indication that there’s some confusion about where the market is headed next. Bonds retreated last week in response to Friday’s jobs report, but it’s been signaling recession for a while now, something that I think equities will begin reflecting sometime again in the near future.

S&P 500 Sector Performance & Flows

Strength is pretty broad in the tech sector with several groups generating 20%+ gains over the past month. Networking stocks have done particularly well, but are way into overbought territory and due for a pause. The discretionary sector is a little less strong, but still performing well. The wild card has been the online retail space, which has been very volatile and experiencing wide swings on a weekly basis. Nominal sales growth figures seem to be providing some level of support here, but the inflation-adjusted numbers suggest that consumers are cutting back on their spending. The communication services sector is still the weak link. Social media stocks are the big drag, although traditional telecom names have been hanging on.

S&P 500 Sector Performance & Flows

The energy sector continues to be the short-term underperformer among the cyclical sectors and now sits more than 20% below its 52-week high. Oil and gas prices have come way down from their peak and the ongoing economic slowdown will continue putting pressure on share prices. The materials sector has been pretty strongly correlated with the energy sector in recent weeks, although it’s been getting a boost from the miners, an area that’s starting to look especially cash flow heavy and could emerge as a yield opportunity in the future. Again, industrials are looking good, but I’d keep an eye on the airlines as a source of potential weakness.

S&P 500 Sector Performance & Flows

Healthcare, which had been one of the market’s best-performing sectors throughout the 1st half, has been lagging badly over the past month as investors pivot back to growth. We’re still seeing mixed strength among the other defensive sectors, including real estate, so I wouldn’t write this off as broad defensive sector underperformance yet.

Within the commodities space, precious metals are looking better here and I think reflective of the recession risks that are starting to build. Lumber is still the big loser and a troubling signal for those expecting a big comeback in the economy. The dollar has been more balanced over the past 2-3 weeks, but the July jobs report could give it the strength to make another move higher. The narratives in Europe, Japan and China are well-entrenched and the U.S. economy is going to look much better in comparison here.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

3 Dividend ETF Picks For August 2022

David Dierking — Wed, 03 Aug 2022 20:50:25 GMT

With the U.S. economy in recession and China threatening to invade Taiwan, now is not the time to be risking up.

After months of pain in 2022, investors finally got a reprieve in July. The S&P 500 was up 9%. Small-caps gained 10%. Even long-term Treasuries, which had been beaten down right along with stocks, returned 2-3%. Whether or not this just turns out to be a temporary bear market rally remains to be seen, but for one month at least, optimism returned.

I tend to be on the bearish side of this argument. From my point of view, inflation is still roaring, interest rates are starting to stifle growth and manufacturing, the economy just experienced its 2nd straight quarter of negative GDP growth and the housing market is starting to decline quickly. I know that the economy isn’t the market, but there’s just too much here trending in the wrong direction to make me think otherwise. The real catalyst for equities putting in a bottom is a dovish pivot from the Fed. Part of the reason risk assets rallied in July was because of the perception that the Fed may be getting close to the point of backing off on tightening conditions. As long as the Fed’s #1 goal is inflation control, however, I don’t see a reason to expect a longer-term move higher just yet.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Dividend stocks have been one of the biggest winners of 2022 and I think that outperformance trend is likely to continue throughout the remainder of the year. I don’t know if that will necessarily translate into positive returns, but it should offer at least a modest amount of downside protection in case things go south.

There are all flavors and strategies within the dividend ETF universe, but I think those that take more of a defensive approach will play better in this market. I’m going to offer up three dividend ETFs that meet that criteria, but layer a second strategy on top of that - low volatility, high yield and sector allocation.

VictoryShares U.S. Equity Income Enhanced Volatility Weighted ETF (CDC)

Dividend ETF Ranking: #11

Dividend ETF Picks for August 2022

If you’ve followed my work in the past, you’ll know that I’m a big fan of this ETF. There are a lot of things going on within this fund’s strategy, but the overall high level view is that it aims to deliver equity market returns, an above average yield, managed risk levels and downside protection.

CDC starts by pulling the 100 highest yielding stocks out of a universe of the 500 largest U.S. stocks. The weightings in the ETF’s index are based on the inverse of the daily standard deviation of returns over the prior 180 days. Additionally, the fund will pare back equity exposure during market downturns.

For example, CDC has reallocation triggers at every 8% decline in the large-cap index. At an 8% correction, the fund goes from 100% equity exposure to 25%. At every additional 8% decline, it adds back 25% equity exposure to the point where it goes a full 100% back into equities with a 32% market drawdown. Think of it as getting mostly out during the initial decline, but attempting to buy the dips as stocks fall further.

Historically, this has been a top tier ETF among those using similar strategies. It has earned a 5-star rating from Morningstar and its returns land it in the top 3% of more than 1,000 funds in Morningstar’s Large Value category.

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

Dividend ETF Ranking: #10

Dividend ETF Picks for August 2022

SPHD’s strategy follows a similar path to that of CDC without the “enhanced” weighting strategy. As I’ve discussed with this fund in the past, it’s been either a feast or famine type of ETF. From 2017 through 2021, when growth, tech and high beta stocks were all the rage, SPHD had a really tough time. In 2022, when defensive stocks, low volatility and dividend payers have been the leaders, SPHD has shined (relatively speaking, of course, but the fund is up 1% on the year)!

SPHD starts with the S&P 500 and pulls out the 75 highest yielders, REITs included. Within that sub-universe, it targets the 50 names with the lowest realized volatility over the past 12 months and weights all qualifying components by their dividend yield. What you end up with is a portfolio that has been about 25% less volatile than the S&P 500 over the past year and offers a current yield of almost 4%.

FlexShares Quality Dividend Defensive Index ETF (QDEF)

Dividend ETF Ranking: #39

Dividend ETF Picks for August 2022

The FlexShares dividend ETFs (this one along with QDF, QDYN and the international counterparts to each) because they focus on stocks backed by healthy balance sheets, have above average yields and have the ability to continue growing their dividends over time. QDF is probably my favorite out of the bunch based on its broader approach, but QDEF is perhaps the better ETF for this moment.

It starts with a universe of 1,250 large- and mid-cap stocks and immediately eliminates non-dividend payers. Using quality and fundamental metrics, it assigns a dividend quality score to each remaining stock and avoids any one of them that lands in the bottom quintile. From there, a portfolio optimization process is used that looks to accomplish three things - maximize overall quality score, pay an above average yield and maintain a portfolio beta between 0.5 and 1.0.

The quality and low volatility aspects of this portfolio are probably the most beneficial today since the current 2.4% yield isn’t that much above average.

With that being said, let’s look at the markets and some ETFs.

Last week’s rally pushed the relative strength readings for most sectors into bullish territory. The past couple of weeks have been dominated by growth names, specifically those in the tech and consumer discretionary sectors. It’s not surprising that whenever there’s a belief that the Fed might be nearing a more accommodative tone, risk assets tend to rally. I believe that’s the primary reason we’ve seen the markets move higher, although I’m not sure it’s entirely justified. I think this is more of a bear market rally than anything and I’m skeptical that it has any kind of longer term legs.

The consumer discretionary sector at a high level has been rallying hard lately, but there’s weakness below the surface. The retail names continue to get battered, as evidenced by the results from Target and Walmart. Homebuilders are hanging on, but they’re about to face a much tougher environment. The leisure and recreation sector has already seen dampened enthusiasm due to high inflation and higher energy costs.

The tech sector is where the real action has been happening. With the exception of cybersecurity stocks, the gains have been pretty broad. Semiconductors have been making a comeback, but networking, blockchain and digital payments stocks are also up double digits in the past month. This is the first time that the tech sector has regained leadership since the 4th quarter of last year, but whether it lasts remains unclear.

Cyclicals have staged quite a rebound lately and it’s the mostly forgotten industrial stocks that have performed best. Most of oxygen in the room gets sucked out by the energy sector narrative, but the manufacturing-heavy companies have actually been doing better. While growth rates in factory activity remain in positive territory, the trend is heading towards negative growth and is likely to hit that mark before the end of the year. From a macro perspective, there’s not a lot to get too excited about despite the recent run.

Speaking of energy, clean energy stocks had one of their best weeks in recent memory. Traditional oil sector names also did very well in the hopes that the central bank will soon come to the rescue, but that may be premature. Oil prices, while off of their highs, remain pretty resilient here and that’s been adding some support to energy stocks, in general. The materials sector, including the miners, finally had a good week following what’s been a miserable 3-month run.

The healthcare sector has cooled considerably from its 2022 outperformance. Utilities and consumer staples are hanging on, but it’s the real estate sector that’s been the star among the defensive sectors. I find it a little curious given how mortgage demand and new home sales prices have plummeted in light of much higher mortgage rates. This is a trend that probably isn’t going away any time soon and I think we’ll see a reversal in the near future.

The dollar looks like it finally may be getting ready to halt its climb. Lower long-term yields are going to be a headwind to dollar demand and we’re seeing many foreign currencies regaining ground on the greenback.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Best Performing Dividend ETFs For July 2022

David Dierking — Mon, 01 Aug 2022 14:22:02 GMT

Several dividend ETFs gained more than 10% in July despite dividend stocks as a whole underperforming.

The renaissance for dividend stocks continued in July as investors returned with a sense of optimism. After selling throughout much of 2022, investors began feeling as if inflation might be peaking, the Fed might be nearing the end of its rate hiking cycle and corporate earnings haven't been as bad as feared. Yes, it looks like recession is upon us, but folks appeared to spend much of the month searching for more positive narratives.

Dividend stocks didn't keep up with the broader averages this month. Previous leaders, including high yielders, lagged the S&P 500 by around 4%, but the dividend growth and dividend quality also underperformed by 1-2%. That doesn't mean that there weren't winners to be had. Multiple ETFs gained more than 10% and many of the month's biggest winners came from smaller and relatively less-known issuers.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

One trend that we did see play out in July was the return of riskier dividend strategies. ETFs that focused on mid-cap and small-cap dividend payers tended to perform a little better, while sector plays, including those focusing on the financials and real estate sector performed particularly well. The broader market saw previously beaten down groups, including growth and tech, do quite well in July and those dividend payer strategies that took a little more risk similarly followed suit.

After outperforming the market for much of the 1st half of 2022, dividend stocks have only really matched the market over the past two months. With recession setting in and the global economy continuing to slow, I'd expect dividend stocks to return to their outperforming ways in the 2nd half of the year. That may not necessarily translate into positive performance, but the relative safety of companies backed by strong balance sheets and healthy cash flows should look particularly attractive.

Here's the list of the best performing dividend ETFs for July 2022.

Top Performing Dividend ETFs for July 2022

The funds that hit the 10% return mark this month - the ProShares S&P Technology Dividend Aristocrats ETF (TDV), the First Trust SMID Cap Rising Dividend Achievers ETF (SDVY), the First Trust Small Cap U.S. Equity Select ETF (RNSC) ,the Invesco KBW High Dividend Yield Financial ETF (KBWD), the Siren DIVCON Leaders Dividend ETF (LEAD), the Hoya Capital High Dividend Yield ETF (RIET) and the Dimensional U.S. Small Cap Value ETF (DFSV).

TDV, not surprisingly, is beating the tech sector by about 7% year-to-date and the S&P 500 by more than 2%. Its focus on tech and dividend growers combined two themes that did well in July. KBWD is highly volatile due to its heavy allocations to mortgage REITs and custody firms, but tends to be a leader when REITs and financials do well (its 10% yield also helps). RNSC is an equal-weight portfolio of small-cap dividend payers.

REIT ETFs did surprisingly well given the questionable backdrop that includes a crumbling Chinese real estate sector and a declining U.S. housing market. The Hoya Capital High Dividend Yield ETF (RIET) was the best performer, a newer ETF that incorporates high yield, dividend growth and quality components to security selection. It's followed by two REIT ETFs that are focused on the highest of high yielders - The Global X SuperDividend REIT ETF (SRET) and the Invesco KBW Premium Yield Equity REIT ETF (KBWY). Both yield around 7% currently.

Looking at another new ETF, the AAM Bahl & Gaynor Small/Mid Cap Income Growth ETF (SMIG) lands in the top 15. It's an actively managed fund that focuses on companies with competitive advantages, under-appreciated capabilities and strong dividend & cash flow growth. It's already over $100 million in assets, so it's been getting some attention.

WisdomTree lands 6 ETFs in July's top 30 list. Several of its broader dividend and dividend growth ETFs appear, but it's the WisdomTree International Quality Dividend Growth ETF (IQDG) that I want to spend a minute on. It's the foreign counterpart of the popular WisdomTree U.S. Quality Dividend Growth ETF (DGRW) and could be a nice option if you're looking to diversify your income streams. Its quarterly distribution is a little choppy, but it's good a yield of more than 3% and comes with only modest volatility.

Other ETFs Worth Noting:

None of the largest and most well-known dividend ETFs make this month's cut. The SPDR Russell 1000 Yield Focus ETF (ONEY) is the only ETF that lands in the top 10 of my dividend ETF rankings that shows up on this month's list, where it currently sits at #7. The next highest ranking ETF would be the FlexShares Quality Dividend Index ETF (QDF) at #18.

The funds at the top of this list have sister ETFs using similar strategies but targeting different markets. KBWD, for example, has KBWY, which I mentioned earlier. RNSC focuses on small-caps, but there is also the First Trust Mid Cap U.S. Equity Select ETF (RNMC) and the First Trust Large Cap U.S. Equity Select ETF (RNLC). All three funds did very well in July, demonstrating that the funds' core targeting strategies worked quite well.

Highlighting a couple more under-the-radar dividend ETFs, the Siren DIVCON Leaders Dividend ETF (LEAD) and the VictoryShares Dividend Accelerator ETF (VSDA) are two funds that have appeared on these lists before in 2022. Both focus on dividend growth and quality. VSDA has had a particularly strong year.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

TSLQ vs. TSLH: A Look At Two New Tesla (TSLA) Single Stock ETFs

David Dierking — Tue, 26 Jul 2022 13:35:00 GMT

One is an inverse ETF. The other is a buffer ETF. Both bring alternate Tesla investing strategies to the masses.

One of an ETF's biggest advantages is its ability to offer broad diversification in a single security. But sometimes that's not what investors are looking for. Some are seeking out very concentrated coverage, even to the point of owning just a single stock.

Obviously, if you want to own a single stock, you should just buy a single stock, but it's when ETFs can offer something on top of the single stock that things can get more intriguing.

Take, for instance, two ETFs that just launched that use Tesla (TSLA) as their foundation - the AXS TSLA Bear Daily ETF (TSLQ) and the Innovator Hedged TSLA Strategy ETF (TSLH). As you can probably guess from their names, they have very different objectives, but could be a good way for investors to achieve alternative outcomes without some of the hassle that could go along with them.

TSLQ vs. TSLH: A Look At Two New Tesla (TSLA) Single Stock ETFs

AXS TSLA Bear Daily ETF (TSLQ)

TSLQ's objective is very simple - to deliver the inverse of the daily performance of Tesla stock. Like other inverse ETFs, it uses swap agreements and will reset exposures every day. It comes with an expense ratio of 1.15%. This product, quite simply, is for people who want to bet against Tesla.

It's worth noting that TSLQ is just one of a suite of single stock ETFs launched by AXS. It now offers single stock ETFs with varying degrees of leverage and exposure on PayPal, NVIDIA, Nike and Pfizer. In addition, the company launched the AXS 2X Innovation ETF (TARK) back in May.

Innovator Hedged TSLA Strategy ETF (TSLH)

TLSH is structured as a buffer ETF. If that strategy sounds familiar, it should. Innovator is a leader in the buffer ETF category and now expands its lineup to single stock buffer ETFs.

Like the other Innovator Buffer ETFs, TSLH will offer a specific pre-determined level of downside protection in exchange for a cap on upside share price potential over the outcome period. In this fund's case, it will seek to limit Tesla losses at 10% per quarter. The cap on potential returns over the quarter will be 9.14% net of fees through 9/30/2022 with the outcome period resetting every three months.

Why Single Stock ETFs?

Single stock ETFs may seem counterintuitive on the surface, but they can actually make some sense. The one thing that prevents a lot of investors from executing these strategies on their own is the access to margin and options accounts. Many brokerages won't allow it for the average retail investor. ETFs are, however, accessible to virtually everyone. An ETF that bundles one of these more exotic strategies with long exposure to the stock itself is a way for the typical investor to get into the game.

Access to leveraged or inverse ETFs, however, isn't a guarantee either. Vanguard, for instance, largely avoids allowing investors to own or trade these kinds of products. There are brokers out there that will let you trade them (Interactive Brokers should be one) if you seek them out.

In the interest of full disclosure, the SEC, even though it approved them for trading, urges a high level of caution when buying or selling. Inverse and leveraged ETFs aren't meant for long holding periods and should be monitored regularly. There's also single stock risk investors must consider.

When Should You Buy A Single Stock ETF?

I generally don't play in the inverse and leveraged ETF sandbox, so I naturally land more on the side of why shouldn't you invest in TSLQ. To be fair, there is demand for this type of product. In less than 10 trading days, TSLQ already has nearly $40 million in assets, which is a very fast start for an ETF that isn't coming in with its own assets. The 1.15% expense ratio might seem high on the surface, but this is the cost of this kind of strategy. In fact, I think it's actually fairly palatable compared to the likely cost of doing this on your own.

Should you invest. in TSLQ? I guess it depends on your opinion of Tesla. Looking at it purely from a standpoint of whether or not it's an efficient means of giving investors access to a short strategy, it probably is. This is one of those cases where an ETF makes things much easier.

The case for TSLH is a little easier. Buffer ETFs are broader stocks indexes have become very popular and a good way to achieve equity exposure within a specific opportunity set. They may prevent you from achieving 100% of upside potential in a raging bull market, but it's the elimination of varying levels of downside risk that is the most attractive feature.

And Tesla certainly has downside potential. If you want to take a swing at Tesla, but still protect yourself in the event that the bottom falls out, this is a good way to do it. Granted, Tesla can move 10% or more in a single day, but I like this as a more conservative way to add exposure.

Stocks Are Optimistic, Bonds Are Not. Which One Is Right?

David Dierking — Mon, 25 Jul 2022 17:27:45 GMT

The recent rally for the S&P 500 looks great, but falling Treasury yields raise a red flag.

If you’re an equity investor who’s been riding out this year’s bear market and have managed to avoid the temptation to sell, congratulations! Since the middle of last month, you’ve seen the S&P 500 rise by about 9% and the Nasdaq by 11%. Bear markets usually come with intermittent rallies and it’s a good reminder how good old fashioned buy-and-hold can have benefits.

We can argue that stocks were due for a bit of a rally given how negative sentiment and performance have been this year. I think what we may be seeing here is investors reacting to what is looking like the end of the Fed rate hiking cycle this year. Throughout 2022, we’ve seen inflation rates soar and the Fed attempt to quickly catch up to get it back under control. The problem is that there was no understanding of where the ceiling might be. With inflation and interest rates moving sharply higher, there was little reason to be overly optimistic about stocks.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Today, the end may finally be in sight. I think what we’re looking at now is a 75bp hike this week, a 50bp hike in September, 25bp hikes in November & December and that’s it. Then, I think we’re looking at rate cuts again by the middle of 2023. Stocks, we know, react favorably to loosening financial conditions and I think they’re starting to sniff that out now. Stocks won’t turn when the economic damage is finally over. They’ll start moving higher ahead of it and the trigger is probably when the Fed pivots (or gives hints that they’re thinking about it).

The bond market, on the other hand, isn’t nearly as optimistic. As of the middle of June, the 10-year Treasury was yielding nearly 3.5%. Today, that number is at 2.8%. If the short end of the curve is reflective of central bank activity, the long end is representative of economic activity. The 3-month Treasury yield is still gently moving higher, but not nearly at the furious pace it was earlier in the rate hiking cycle. Short-term Treasury traders think the Fed isn’t quite done yet. Long-term Treasury traders see recession ahead and are positioning themselves more defensively.

So, which one is telling the right story? Is it stocks or bonds?

I’ve often said that the bond market is right more often than the stock market. I think that’s the case here too. Looser conditions are beneficial for equities, but it doesn’t overshadow the fact that most economic indicators right now are signaling that we’re heading full speed towards recession. Plus, we don’t know yet how bad it might get. The real estate sector in China is looking like it’s in real trouble. The housing market in the United States is already going bust. Companies are laying off again. Some emerging economy governments are already defaulting on their debt. This may not be a run of the mill recession in the immediate future.

I wrote about Treasuries becoming a real opportunity later this year just a couple weeks ago. I still think that’s the case now. Investors should be paying attention to what the bond market is saying.

With that being said, let’s look at the markets and some ETFs.

The S&P 500, as mentioned, is looking healthier here and it’s being driven by the return of growth sectors. Discretionary stocks have been beaten down handily this year and I think this recent move is an oversold bounce as much as anything. The concerning outlook for the retail sector makes me feel like 2022’s performance thus far is justified. Tech, however, looks a little more interesting. Valuations have come back down into a normal range and there’s still a lot of growth potential over the next several years in many of these areas. Granted, a coming recession will sink all boats, but I’m beginning to like the look of its risk/return profile.

Semiconductors have been leading the charge in the tech space, but most areas are looking good here. It’ll be interesting to see how the chips bill in Congress with come out. It certainly seems like it would hurt profitability on the surface, but it’s passage is unclear at the moment. Blockchain stocks had a good week, but it’s been a stomach-churning ride. Short-term measures show this group behaving twice as volatile as the S&P 500. There’s plenty of opportunity here, but who knows where the right entry point is.

The communication services sector is tough to get too optimistic about. I think we’ll learn a few things from Facebook’s and Alphabet’s earnings coming up, but Snap’s big miss, Netflix’s struggles and Twitter’s battle with Elon Musk suggest a lot of uncertainty here. Share prices have certainly reflected the highs and lows of this group, but it’s not one I’m getting behind here.

Energy is still hanging on here, but it’s not the high flyer it used to be. Natural gas prices are still on the rise, reflecting some of the risks happening between Europe and Russia, but crude prices are still well off of their highs. Surveys are indicating that it’s not COVID that’s putting downward pressure on travel demand any longer. It’s affordability. Even though I see this sector facing more struggles, there’s a fairly compelling case that there’s some downside protection here based on valuations alone. I wouldn’t give up on this sector just yet.

The earnings season for the big banks produced mixed results and told us a lot of what I think we already knew. Profits were way down. Higher interest rates helped. The investment banking side dried up. Trading revenues continue to support the bottom line. I think we’re probably going to see rates continue drifting down over the next 6 months or so and that will turn into another headwind for financials.

The dollar is finally getting a little competition from other global currencies. The euro got a nice bump from the ECB’s 50bp rate hike and the reopening of a key pipeline from Russia. A decelerating economy will always fuel demand for the relative safety of the dollar, but it’s certainly looking overbought here and due for a reversal.

The declines in copper and silver concern me the most. These are two heavily used industrial metals and seeing their prices drop 13-15% in just one month suggests the manufacturing sector is deteriorating rapidly. Lumber pries heading south again only confirms this notion.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Best Dividend ETFs (Updated July 2022)

David Dierking — Thu, 21 Jul 2022 17:37:14 GMT

Dividend stocks have been some of the best performers of 2022. Let's take a look at the best dividend ETFs for investors!

The equity markets have turned sharply south in 2022. Previous leaders, including tech and growth, have turned into laggards as valuations come back down to earth and investors shy away from more speculative investments. That's been great for more defensive themes, such as dividend payers and low volatility stocks. They haven't (for the most part) been able to generate gains in 2022, but they have outperformed the S&P 500 by a wide margin and provided investors a measure of safety.

Investors have poured more than $45 billion into dividend ETFs year-to-date through mid-July. A lot of that money has been directed towards the biggest and cheapest funds available. The top dividend ETFs in this updated ranking list have achieved their spots via investor-friendly expense ratios, popular themes and solid long-term performance.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

I often talk about the three pillars of dividend investing - dividend growth, dividend quality and high yield. All three performed comparatively well this year, but high yielders have maintained a slight performance advantage. I'm believer that investors should incorporate all of these pillars into their investment portfolios. While they all tend to be highly correlated, they do perform differently in different scenarios. High yielders tend to do better when investors are a little less risk-averse. Long-term dividend growers often outperform when defensive investing is leading. I'm a fan of ETFs that incorporate multiple pillars in their strategies, but there are winners across all categories.

There are any number of thematic or smart beta twists on dividend investing within the ETF space, as we're about to see, and I think that'll only help investors pivot their portfolios to take advantage of the market environment.

Ranking The Dividend ETFs

Methodology & Factors For Ranking ETFs

Before we dive in, let's establish a few ground rules.

Second, let's run down the factors I used in the ranking methodology.

Expense Ratio - This is perhaps the most important factor since it's the one thing investors can control. If you choose a fund that charges 0.1% per year over a fund that charges 1%, you're automatically coming out ahead by 0.9% annually. You can't control what a fund returns, but you can control what you pay for the portfolio. Lower expense ratios equal more money in your pocket.
Spreads - This relates to how cheaply you can buy and sell shares. Generally speaking, the larger the fund, the lower the spreads. Bigger funds usually have many buyers and sellers. Therefore, it's easier to find shares to transact and that makes them cheaper to trade. On the other hand, small funds tend to trade fewer shares and investors often need to pay a premium to buy and sell. Considering expense ratios and spreads together usually give you a better idea of the total cost of ownership.
Diversification - Generally speaking, the broader a portfolio is, the better chance it has at reducing overall risk. A fund, such as the Energy Select Sector SPDR ETF (XLE), provides a good example. 45% of the fund's total assets go to just two stocks - ExxonMobil and Chevron. By buying XLE, you're putting a lot of faith in just those two companies. An equal-weighted fund, such as the Invesco S&P 500 Equal Weight Energy ETF (RYE), would score higher on diversification than XLE.
FactSet ETF Scores - FactSet calculates its own proprietary ETF ranking for efficiency, tradeability and fit. They basically are designed to tell us if an ETF is doing what it sets out to do. I'm not going to copy and paste that work that they're doing, but there is some influence there to make sure my rankings are on the right path.

There are a few other minor factors thrown into the mix, but these are the main factors considered.

I'm ranking ETFs based on more basic structural factors. Are they cheap to own? Are they liquid? Do they minimize trading costs? Do they maintain risk-reducing diversification benefits?

Best Dividend ETF Rankings

As is usually the case in these rankings, the ultra-cheap ETFs tend to have the advantage and that's no clearer than looking at the dividend ETFs. The chasm between the ultra-cheap and the next tier is so large, in fact, that it's no surprise that the six ETFs that charge less than 10 basis points annually take the top 6 spots on this list.

Best Dividend ETFs

The Vanguard High Dividend Yield ETF (VYM) has consistently been at the top of these rankings and takes the #1 spot again in the latest update. It's huge. It's liquid. It's ultra-cheap. It checks all the boxes for what you'd want in an ETF.

VYM along with the SPDR Portfolio S&P High Dividend ETF (SPYD) and the iShares Core High Dividend ETF (HDV), obviously, focus on the high yield end of the space. The Vanguard Dividend Appreciation ETF (VIG) and the iShares Core Dividend Growth ETF (DGRO) use slightly different criteria to target dividend growers. The Schwab U.S. Dividend Equity ETF (SCHD) goes after long-term dividend payers with quality characteristics and above average yields, so it would be your multi-themed option. If you're looking strictly for a high quality, low cost, long-term buy-and-hold dividend ETF, this group is a great place to start. If I can choose only one fund out of this group to invest in, it'd probably be SCHD due to its inclusion of growth, quality and yield characteristics.

A little further down the list, the iShares Select Dividend ETF (DVY) is another great fund with a solid track record, but gets dinged because of its 0.39% expense ratio. Same story for the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), which only includes the stocks meeting the strict definition of dividend aristocrats by raising their dividend for at least the past 25 consecutive years.

The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) has long been one of my personal favorite dividend ETFs and it's finally made a big performance comeback in 2022. Its low volatility approach hasn't done well in years past as mega-cap growth and tech names have dominated, but it's made a strong comeback this year.

Other funds I particularly like include the WisdomTree U.S. Quality Dividend Growth ETF (DGRW) at #17, the FlexShares Quality Dividend Index ETF (QDF) at #18 and the First Trust Rising Dividend Achievers ETF (RDVY) at #21.

The Vanguard International High Dividend Yield ETF (VYMI) and the Vanguard International Dividend Appreciation ETF (VIGI) are the highest rankings foreign equity ETFs on the list. Whenever overseas stocks come back into favor (I suspect international will outperform U.S. during the 2020s decade as a whole), these two would be clear candidates for inclusion in a dividend portfolio. As is the case with most Vanguard ETFs, they lead on cost and liquidity and follow similar strategies to their U.S. counterparts.

The next batch of 30 names in the rankings include a few funds I thought would rank higher, a number of interesting mid-size ETFs and some newbies.

Best Dividend ETFs

The two ETFs that stand out here are the First Trust Value Line Dividend Index ETF (FVD) and the Invesco High Yield Equity Dividend Achievers ETF (PEY). FVD has stood out recently on the performance front, but that 0.67% expense ratio is way above the category average. PEY has long been a favorite of mine due to its focus on dividend growth and yield, but also gets pushed down the list based on cost. If either of them had an expense ratio of even 0.20%, they'd land in the top 15.

The JPMorgan U.S. Dividend ETF (JDIV) at #46 is the opposite case. It has a great expense ratio, but just hasn't caught on with investors. At just $72 million in assets, it's easily the smallest ETF to land in the top 50. Due to that and the lack of trading volume, spreads are quite high making the total cost of ownership not quite so advantageous.

There are lots of 7%+ yield options out there nowadays, but most come from the riskiest areas of the market. Funds, such as the iShares International Select Dividend ETF (IDV) and the WisdomTree Emerging Markets High Dividend ETF (DEM) are in that range, but the returns over the past year demonstrate why investors shouldn't choose based on yield alone.

Special shout out to the Pacer Global Cash Cows Dividend ETF (GCOW). It has been one of the best dividend ETFs of 2022 and highlights what's been a fantastic year for Pacer, in general. The Pacer Cash Cows 100 ETF (COWZ) continues to rake in the cash and is a top performer in its own right. Pacer is still only the 20th largest ETF issuer by assets, but watch for it to continue climbing the list!

Other ETFs I like from this group: the First Trust Nasdaq Technology Dividend Index ETF (TDIV), the VictoryShares U.S. Large Cap High Dividend Volatility Weighted ETF (CDL) and the VictoryShares Dividend Accelerator ETF (VSDA).

Now we're starting to get to the area of these rankings where there might be some investability issues. These ETFs may be getting dinged on expense ratios, concentration or liquidity. They may also just be too small to have really gained any scale at this point.

Best Dividend ETFs

There are also a lot of international ETFs in this range, which tend to rank a little lower on size and expense ratio compared to U.S. dividend ETFs. The WisdomTree International Hedged Quality Dividend Growth ETF (IHDG) is the only fund in this group with at least $1 billion in assets.

I've always found the AAM S&P 500 High Dividend Value ETF (SPDV) kind of interesting. There aren't a whole lot of dividend ETFs that focus on value and SPDV could be interesting if that theme continues to do well. It's also been a top performer this year.

It's a little unusual to find 11 WisdomTree ETFs all bunched up here. WisdomTree is a terrific ETF issuer and their funds generally follow a very well thought out and logical strategy. It may never compete with the lowest fee dividend ETFs, but its lineup has a lot of reasonably priced funds that fit almost any strategy.

A couple of other funds I think are set up fairly well are the Siren DIVCON Leaders Dividend ETF (LEAD) and the VanEck Morningstar Durable Dividend ETF (DURA).

And the rest of the dividend ETF rankings:

Best Dividend ETFs

Best Dividend ETFs

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

ARK Is Closing One Of Its ETFs

David Dierking — Tue, 19 Jul 2022 21:24:08 GMT

ARK's newest ETF is shuttering just 8 months after its launch.

Cathie Wood's ARK Investment Management just announced that it will be closing the ARK Transparency ETF (CTRU) on July 26th.

The fund just launched in December 2021, but never really got off the ground in the way that most of the other ARK ETFs did. At its peak, it has about $20 million in assets, but the bear market this year shrunk those assets down to about $12 million. Over the course of its brief life, CTRU was down 38% and never had a day where its since-inception return was positive.

ARK made the announcement on Tuesday.

ARK Transparency ETF (CTRU) is closing.

CTRU was always a bit of a curious addition to the ARK lineup. While its objective of targeting and investing in the most transparent companies in the world is certainly in line with the transparency that ARK offers within its own funds, it didn't convey the disruptive innovation message that the other ARK ETFs. The idea of investing in transparent companies seems like a good surface level idea, but it proved to not be enough of a factor to motivate investors to put their money into it.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

CTRU becomes the 1st ETF in the ARK lineup to close its doors and an indication that Cathie Wood and her company are no longer the Wall Street darlings that they were as recently as a year ago. At its peak, the ARK suite of ETFs managed nearly $60 billion in total. Today, that number is down to $16 billion.

Investors have pulled a net $5.5 billion out of these funds over the past year, but most of the AUM decline has come as the result of poor performance. Four ARK ETFs, including the tentpole ARK Innovation ETF (ARKK), are down at least 68% from their all-time high.

In another deviation from the ARK norm, CTRU was just the 2nd fund in its lineup to track an index (along with the ARK Israel Innovative Technology ETF (IZRL). FactSet had previously flagged the fund as having a high risk of closure based on a lack of assets and trading interest.

All is not lost for ARK however. The company has brought in nearly half a billion dollars of new investor money over just the past month, most of it coming into ARKK. The performance of the funds has suffered greatly, but investor interest in Cathie Wood's ETFs has not. Of the top 10 thematic ETF inflows over the past month, three come from ARK - the ARK Innovation ETF (ARKK), the ARK Genomic Revolution ETF (ARKG) and the ARK Fintech Innovation ETF (ARKF).

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

ETF Battles: JEPI vs. QYLG vs. XYLG! Which High Dividend Yield ETF is Best?

David Dierking — Tue, 19 Jul 2022 15:39:22 GMT

JEPI's yield is now up to 14%. Is it time for investors to pounce?

This is my 5th episode on ETF Battles as a judge! If you've ever wondered what I sound like in person, here's your chance! My thanks to Ron and ETF Guide for feeling that I'm qualified to appear on their show!

And there will be more to come soon in the future!

**********

Note: I'm excited to be partnering with ETF Guide to bring you their weekly web series, "ETF Battles".

ETF Guide founder, Ron DeLegge, explains that in a typical "battle", "each fund is judged against the other in key categories like cost, exposure strategy, performance and a mystery category."

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Two industry experts are brought in to debate the ETFs and eventually declare a winner.

Be sure to check out links to both ETF Guide and the judges down below! Enjoy the battle!

In this episode of ETF Battles, Ron DeLegge @ETFguide referees an audience requested contest between high yield passive dividend income ETFs. Who wins the battle?

Watch the JPMorgan Equity Premium Income ETF (JEPI) vs Global X NASDAQ 100 Covered Call & Growth ETF (QYLG) vs the Global X S&P 500 Covered Call & Growth ETF (XYLG) going head-to-head.

Program judges David Dierking with TheStreet.com and Tom Psarofagis with Bloomberg Intelligence judge the ETF match-up, sharing their investing research insights.

Each ETF is judged against the other in key categories like cost, exposure strategy, performance, yield and a mystery category. Find out who wins the battle!

*********

ETF Battles is sponsored by: Direxion

Daily Leveraged & Inverse ETFs. Know the risks. Proceed Boldly.

Visit http://www.Direxion.com

*********

You are invited to a Zoom webinar with Ron DeLegge:

When: Wednesday, Apr 20, 2022 4:00pm ET /1:00 PM Pacific (US and Canada)

Topic: The What, When and How of Maximizing Your Social Security Income Webinar

Speakers: Ron DeLegge (Founder @ETFguide & Portfolio Report Card)

After registering, you will receive a confirmation email containing information about joining the webinar.

NOTE: The information is geared exclusively for retirees and pre-retirees who are U.S. residents.

*********

Get in touch with our judges:

David Dierking (TheStreet.com) https://etffocus.substack.com/archive

Tom Psarofagis (Bloomberg Intelligence) https://www.bloomberg.com/authors/ATf...

*********

--YOUR RESOURCES FROM RON--

Get Ron's weekly newsletter https://tinyurl.com/2p8bxy82

Free ETF Guides https://tinyurl.com/4uvfx4m7

Get help with your investing habits https://tinyurl.com/2xrpbzz8

Get feedback on your portfolio's risk https://tinyurl.com/cz4ahj52

#HighYieldETF #DividendETF #Dividends

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

3 High Yield Dividend ETFs To Weather This Challenging Market

David Dierking — Mon, 18 Jul 2022 18:18:29 GMT

There have been few places to hide in this year's bear market, but dividend ETFs have done the best.

Equities have been swimming in dangerous waters for several months now. The S&P 500 is narrowly outside of a bear market at the moment, down about 19% from its highs, but the Russell 2000 and Nasdaq 100 are both off by 28%. The pain for shareholders has already been pretty severe, but we may be entering the phase that could take stock prices another leg lower - earnings.

While a lot of forward-looking numbers, particularly those around economic growth, have been revised lower, corporate earnings forecasts largely haven’t been. The street is still expecting somewhere between 5-10% earnings growth year-over-year and few companies have warned that actual results could come in below estimates. What typically happens is that companies miss numbers for the prior quarter while lowering future quarter forecasts at the same time. It’s unusual for a company to warn at one point and then disappoint again shortly thereafter. They usually like to get all the bad news out of the way at once.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

That’s why I think that stocks are particularly vulnerable over the next month or so. I have a feeling we’re going to be getting a lot of bad news that isn’t already priced in. JPMorgan Chase and Morgan Stanley already disappointed last week. Several companies, including Facebook, Alphabet and Tesla, have warned that hiring is slowing. A month ago, Target said that it’s slashing prices and severely cutting margin forecasts in an effort to simply get inventory off the shelves. The early warning signs are already there and I think more are coming.

Therefore, I think it’s wise for investors to consider defensive positions here instead of trying to hit home runs. Just as much, if not more, outperformance can be achieved in down markets as up markets and dividend ETFs make a solid choice for trying to achieve that.

Dividend ETFs have performed quite well on a relative basis this year, especially dividend growth funds, with a handful even posting positive returns during the 1st half of the year. It’s not guarantee, of course, that they’ll continue outperforming in the 2nd half, but I like how many of them are currently positioned given the economic backdrop continues to deteriorate.

I want to discuss three dividend ETFs that I think are particularly attractive right now. All utilize a multi-tiered approach to stock selection to help identify those stocks that have a better than average chance of leading the market. On top of that, they all offer 3-4% yields and providing an important steady income component that many corners of the market still fail to offer (without taking excessive risk).

Consider adding these ETFs for a bit of safety and yield.

Schwab U.S. Dividend Equity ETF (SCHD)

If you’ve followed my work in the past, you know I’m a big fan of this fund. Instead of targeting any specific strategy, it targets stocks that have positive characteristics on multiple fronts. It starts by only considering stocks with a minimum 10-year history of paying dividends and then selecting those with attractive fundamental factors, such as high cash flow to total debt, high return on equity, dividend yield and 5-year dividend growth rate. It finishes by pulling the highest-yielding stocks out of this group and weighting them by market cap.

Investors get all this for a rock bottom expense ratio of just 0.06%. This ETF has performed in the top 40% of Morningstar’s Large Value category in each of the past 9 calendar years and is on pace to do so again in 2022. Its yield of 3.5% is twice that of the S&P 500 and has delivered these results with modestly less risk than the broader market.

If I could own only one dividend ETF, SCHD would probably be it.

Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

SPHD hits a couple of themes that have performed particularly well in the past year - high yielders and low volatility. The fund’s index starts with the S&P 500 and identifies the 75 stocks with the highest dividend yields over the past 12 months. Within that group, the fund pulls out the 50 stocks with the lowest realized volatility. Qualifying components are then weighted by dividend yield, which helps SPHD offer investors a juicy 4% yield.

If there’s a drawback to this fund, it’s that results are usually feast or famine. In 7 of the past 9 years, SPHD’s performance has landed in either the top 5% or the bottom 11% of its Morningstar peer group. When it’s style is in favor, it’s a top-tier performer. When it’s not, underperformance can be severe.

The good news is that 2022 has been one of the year’s it’s been in favor. It’s currently in the top 3% of its group, outperforming the average by roughly 9% year-to-date. With the economy continuing to slow and global conditions getting worse, it’s reasonable to assume that this fund’s style will remain in favor for a while longer.

Invesco High Yield Equity Dividend Achievers ETF (PEY)

Dividend growth stocks aren’t necessarily known for their yields. Some companies have been raising their dividend for decades, but their yields still hover in the 1-2% range. PEY attempts to rectify that problem by pulling out the highest yielders within the long-term dividend grower universe.

PEY’s index initially includes stocks with a minimum 10-year history of consecutive dividend growth. From that group, it targets the 50 highest yielders and weights them by dividend yield. It doesn’t use the more strict 25-year history requirement to become a dividend aristocrat, but it’s looser requirement allows some of the more recent dividend growers to also make the cut. Overall, it’s a nice balance between dividend growth and high yield.

It also yields 4% right now.

With that being said, let’s look at the markets and some ETFs.

Energy and materials stocks have now turned into the two worst performing market sectors, reflecting the demand destruction that’s already occurring and the steep correction in many commodities. The market appears to have shifted its focus away from the inflation narrative and how high it will go towards the recession narrative and how quickly it’ll get here.

There are no particularly strong areas of the market right now, although defensive sectors have been doing a little better as they have all throughout 2022. While growth has struggled throughout the past several months, tech looks like it might be trying to make a bit of a comeback. As long as cyclicals take a back seat in this slowing environment, there might be space for select tech and growth names to lead again.

Semiconductors are another narrative-driven sector as Congress attempts to push the CHIPS bill through. This legislation would help fund the additional production of semiconductors in the U.S. and lessen the reliance of China. That’s good news for investment in the space, but chip companies have mixed feelings because it’s likely to lower the price of chips and impact profitability. Volatility has been higher in this sector recently, but price results have been fairly good.

Everything else among the growth sectors is still in pretty neutral territory. Cloud and blockchain stocks remain very volatile with mixed results. I’m still very leery of what the consumer space is going to do over this Q2 earnings season. There have been enough warnings to make me believe that there’s some fire with this smoke and I imagine the consumer discretionary space, in particular, could get hit hard.

The biggest losses right now are coming from energy and materials, but really the entire cyclical space is getting weaker. The initial bank earnings reports from last week were mixed to poor and I don’t think anything we’re going to hear from the financials from here on out will be terribly encouraging. Industrials have held up better than their peers, but they’ve begun underperforming as well. There’s really no safe space in this group and I don’t imagine the landscape is going to improve very much for a while. Unless we get an inflation report at some point that indicates pressures are coming down faster than expected, conditions don’t look very favorable.

Healthcare is still perhaps the strongest sector in the market right now. Biotech and genomics stocks have done very well over the past month, but the more traditionally defensive areas of this group are also doing relatively well. We’ve heard some rumblings on drug pricing lately and that’s typically been a negative for this sector, but I don’t see anything meaningful happening here at least until after the midterm elections.

The dollar remains the king of all currencies, but I’m worried it’s moving a little far, a little fast here. A strong greenback can have negative implications on the earnings front and I don’t think corporations need any more headwinds at the moment. Oil prices have balanced out a bit, but President Biden’s trip to the Middle East didn’t produce any real results that could have helped lower oil prices.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

The Recession Is Already Here & That Means The Time For Treasuries Is Coming

David Dierking — Tue, 12 Jul 2022 13:48:09 GMT

There’s some pretty clear evidence that the global economy is slowing, probably rapidly, and there’s likely more pain to come.

If you look at the latest economic forecasts, a fair number (but the minority) feel that a recession could come by the end of this year. About 80% or so feel that a recession will arrive sometime before the end of 2023.

I think it may already be here.

The U.S. GDP fell by 1.6% in the first quarter of this year. The Atlanta Fed GDPNow model, which is widely followed as “the” GDP forecast, is now projecting that Q2 will see GDP decline by 2.1%.

Two consecutive quarters of negative GDP growth is the traditional definition of a recession. If that number turns out to be true (or really even comes close to it), a recession would technically already be here.

The short-term and trailing economic numbers make the economy look like it’s still in decent shape, but the forward-looking numbers don’t.

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

The housing market is beginning to bust pretty quickly. Inventories are rising, the number of cancelled contracts for new home constructions is soaring, housing costs have risen significantly and listing prices are getting slashed. The manufacturing sector is contracting. High inflation is reducing discretionary spending. Commodities prices are falling across the board.

That’s some pretty clear evidence at this point that the global economy is slowing, probably rapidly, and there’s likely more pain to come. I threw up a graphic on Twitter last week talking about the behavior of Treasuries and utilities relative to the S&P 500. When rare events start taking place, you know that something is disconnected. When something is disconnected, there’s a higher probability that a drawdown event could occur.

Here’s the graphic I put up.

Two weeks ago, Treasuries and utilities both outperformed the S&P 500 by at least 5% in the same week for just the 8th time in the past 20 years. The other 7 instances occurred during either a market correction or an outright bear market. The fact that both asset classes turned around UNDERPERFORMED the S&P 500 by 5% each last week underscores what an unsettled market this is right now.

That’s why I’m a big believer in Treasuries here.

Treasuries have gotten slammed this year, mostly due to the Fed’s rate hiking cycle and the bond market repricing accordingly. But with recession risks looming, there’s going to come a time, probably soon, where investors start fleeing to Treasuries for safety. That’ll occur when interest rate expectations have peaked and the markets start looking forward to the next Fed rate cutting cycle. I think that probably happens at some point during the 2nd half of this year when inflation starts coming back down.

I think it’s important to point out that Treasuries are likely to remain volatile in both directions until both inflation and expectations of the Fed start to settle down. Once Treasuries are viewed as a safe haven again and recession risk creeps higher, I think a move back to a 2% 10-year Treasury yield is quite possible. Anything at or above 3% on the 10-year is probably a good entry point.

I think this could be the spot where investors make money over the next 12 months.

With that being said, let’s look at the markets and some ETFs.

Previous high fliers, energy and materials, are now the weakest sectors in the market. Both are responding to a rapid decline in commodities prices covering everything from natural gas to industrial metals to agriculture. On a valuation basis, I think both sectors are still looking reasonable and both appear neither overvalued or undervalued.

Healthcare is still the leader here and the only sector trading above its 50-day moving average. Its defensive peers - consumer staples, utilities and REITs - are in neutral territory and taking a break after leading the market over the past 6-7 months.

Growth, momentum and high beta names finally got a good week. As we’ve seen throughout 2022, we need to see some follow through to feel more confident in calling this a pivot. These sectors are firmly back in neutral territory, but I wouldn’t count on a comeback just yet. Earnings season looms.

On the tech side, blockchain is easily the most volatile subsector in the marketplace today. Single week swings in excess of 10% have become relatively common, although investors haven’t been jumping on board. Net flows are still negative as they are across most tech groups.

Consumer discretionary stocks had a nice week, but I wouldn’t bank on a recovery. The macro picture remains decidedly negative and I’m expecting we see a significant downgrade in both sales and earnings for many of the retail names. It’s already happened with Target and we’re likely to see a similar sentiment from its counterparts.

Energy and materials stocks continue to have a very rough month. Energy is still well in the green year-to-date, but the outperformance that had been building up in materials has completely evaporated and then some. Precious metals miners have been hit especially hard, but nearly everything linked to the commodities space has suffered.

Financials could be an interesting play heading into earnings season. Lending has remained tight, which could help insulate some of the banks from more unfavorable results in the 2nd quarter. Many of the big banks have leaned heavily on the investment banking and trading sides to drive revenues. The IPO market has been virtually non-existent in 2022, but trading has been alive and well. I think there might be a few upside surprises in bank earnings that could cause a quick pop.

Relative strength appears all across the healthcare sector, but the more speculative sector plays, including biotech and genomics, have made a strong comeback. These have been the market’s best performing groups over the past month, which is a little curious given the negative sentiment surrounding the financial markets. Overall, this sector still looks favorable.

I added bitcoin to the “commodities” bucket this week following last week’s 12% gain. The greenback and its parabolic rally is still the standout. This is good for dollar-denominated assets, but maybe not so much for U.S. corporate earnings. We’ll find out over the next month or so. Copper is still looking ugly and exhibit A in the argument that the economy is declining quickly.

ETF Focus on TheStreet: ETF research and Trade Ideas

Best Performing Dividend ETFs for November 2022

Read More…

The Best Trade Opportunity Of 2023? It's Setting Up To Be Treasuries

ETF Equity Sector Overview

New Bull Market or Another Bear Market Fakeout?

Small-caps & Large-caps

Treasuries

Gold & U.S. Dollar

International Equities

ETF Sector Analysis

VIG vs. NOBL: Which Is The Better Dividend Growth ETF?

Vanguard Dividend Appreciation ETF (VIG) vs. ProShares S&P 500 Dividend Aristocrats ETF (NOBL)

Fund Overlap

Sector Allocation

Risk Profile

Fundamental Analysis

Conclusion

Election Day Could Be Ready To Rally Stocks

ETF Sector Analysis

Best Performing Dividend ETFs for October 2022

Read More…

Best Blockchain ETFs (Updated November 2022)

Ranking The Blockchain ETFs

Methodology & Factors For Ranking ETFs

Best Blockchain ETF Rankings

Read More…

5 Dividend ETF Picks For November 2022

ProShares S&P 500 Dividend Aristocrats ETF (NOBL)

FlexShares Quality Dividend Index ETF (QDF)

WisdomTree U.S. Quality Dividend Growth ETF (DGRW)

Capital Group Dividend Value ETF (CGDV)

Pacer Global Cash Cows Dividend ETF (GCOW)

Read More…

ETF Battles: It's VYM vs. SCHD vs. SDIV. Which Dividend ETF is Best?

Read More…

Best Ultra Short-Term Bond ETFs (Updated October 2022)

Ranking The Ultra Short-Term Bond ETFs

Methodology & Factors For Ranking ETFs

Best Ultra Short-Term Bond ETF Rankings

Read More…

The Fed Pivot Is A Myth, But The Markets Might Rally Anyway

Why Is It Important?

Going From 75 Basis Point Hikes To 50 Basis Point Hikes Isn’t A Pivot

Still, Stocks Could Rally Here

ETF Sector Review

Read More…

Retirement Strategy: If The 60/40 Portfolio Is Broken, What Is The Replacement For Bonds?

Death of the 60/40 Portfolio

Replacement Options For Bonds In A Retirement Portfolio

Buy Treasuries

Buy Interest Rate Risk Hedges

Buy Synthetic Equity Income ETFs

Buy Covered Call Bond ETFs

Conclusion

Read More…

Utilities Stocks Are On An Historically Bad Run; Haven't Done This In 20 Years

Read More…

ETF Flows Show Investors Remain Defensive Despite Last Week's Rally

Takeaway For The Week

Read More…

Best Performing ETFs for September 2022

Read More…

Best Performing Dividend ETFs For September 2022

Read More…

Here's The Roadmap For A Big Rally In Equities This Week

Read More…

If You're Worried About Stocks, You Need To Look At Buffer ETFs

Read More…

PORTFOLIO UPDATE: Sold QQQJ, SLV, GDX, ARKK; Bought TLT, BTAL

Sold iShares Silver ETF (SLV) & VanEck Gold Miners ETF (GDX)

Sold Invesco Nasdaq Next Gen 100 ETF (QQQJ)

Sold ARK Innovation ETF (ARKK)

Bought iShares 20+ Year Treasury Bond ETF (TLT)

Bought AGFiQ U.S. Market Neutral Anti Beta ETF (BTAL)

Read More…

PFIX: The Right Interest Rate Hedge Ahead Of The Fed's Rate Hike

Time To Consider Interest Rate Hedges

How To Use PFIX In Your Portfolio

Outlook For PFIX In 2022