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High-Dividend ETFs
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About High-Dividend ETFs |
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High Dividend ETFs Overview and forecast
The High Dividend ETFs, obviously, were in the wrong part of town when the
bombs hit. These ETFs are basically "income" funds, working more on returns
than the standard Net Asset Values approach. In the Dow's version of the
Retreat From Moscow, the first thing to go over the side was dividends.
Performance for some of these ETFs, over a longer term, and since inception,
provides a different perspective to a relatively short term 1 year performance.
It's fair to consider the High Dividend ETFs volatile, in terms of recent price
moves.
That's not necessarily a description of their investments, or their strategies,
but it's a description of market perceptions. Some of these ETFs were based on
asset mixes which would have made perfect sense pre meltdown. An ETF like
First Trust Morningstar Div Leaders Idx (FDL) couldn't be accused of creating a
mix of neophytes. The problem was weighting, with stocks like AT&T, and Bank
of America obvious market leaders, which therefore followed the market down,
regardless of their own issues.
That also pulled the plug on the dividends. There's nothing wrong, or even
particularly abnormal, about "income" funds. They've existed for decades, in
one form or another. Arguably, there's a good market for this model, which
includes both income and capital gains. The learning curve, however, has
sideswiped investors with a market where neither income nor capital gains are
getting much traction in terms of trading needs.
Short term (6 months)
The High Dividend ETFs, based on holdings, and some obvious damage control
issues, are going to be vulnerable in the short term. Their balance sheets and
asset mixes would not be encouraging any fire sales. Some of them bought in at
the top of the market in late 2006, and there's an obvious need to adjust
delicately, rather than any slash and burn approach.
The positive side, such as it is, is that some of these ETFs are popular trading
stocks. They trade in their millions. In the short term, there's obvious upside,
provided you pay attention to values. This is Bollinger Band territory, (again!)
and these moves and variables do make a difference. It is strongly suggested
investors look for sensitivities with individual ETFS. If the ETF cringes, you've
found the problems.
Medium term (2 years)
The High Dividend ETFs will recover, basically because they're glued to the
giant stocks and indices. They rise with the tide. How fast that happens, and
what goes right with which ETF, will be the issues. In the interim, however, it's
not likely to get dull. Because of the trading situation, there is a possibility of
increased value, as markets work on improving margins.
The current market, which could be called a Sniper's Market, shooting carefully
at obvious targets, is quite unlike the more normal aggressive spreads of "get
some returns" of the former bull market. In the two year period, it's likely that
traders moving back in to the ETFs will drive some decent increases in prices.
That said, trust nothing. The ability of a market to stampede in all directions
at once is one of the difficulties with ETFs generally. Traders will pull out
money from secondary and subsidiary markets faster than most people can
blink, or think about blinking. That can make life very bumpy for investors, and
for funds it's a sticky process on their balance sheets. Again, check out value
for money, and any sensitivity, in a High Dividend ETF. It would be worth doing
a test investment that doesn't hurt the bottom line.
Long term (5 years)
In 5 years, the High Dividend ETFs will be doing better. The sun will also rise
and set. Whether the High Dividend ETFs justify investment is entirely
dependent on performance. Their previous performance left something to be
desired in the downward moves. They didn't seem to adapt very well. There's
a real possibility that the High Dividend ETFs may reinvent themselves as more
active management- oriented, or more ALPHADEX- like, doing the micro
approach. It would make sense, in a capital- handling initiative, to be a bit
more flexible than they seem to be.
In fairness to the original concept of the High Dividend ETFs, their initial
performance was pretty reasonable, a nearly 20% rise, in some cases, over a
year or so after inception. If you consider that the average return from the S&P
500, in real terms over several decades, figures out as a healthy, unambiguous
0%, the High Dividend ETFs aren't to be sneered at, in their basic format.
They'll rise with the indices.
But- and it's a significant but, for the High Dividend ETFs: This is an evolving
market, and the High Dividend ETFs could be a bit too conservative for their
own good. They're trying to act like debentures, in one sense, and that's not
necessarily the preferred flavor, these days. They may not have the answers to
new market products built in, and they could become less attractive to
investors as the new products and motifs roll out. They need to evolve, too. If
they don't, there are risks.
Qualifiers on projections
It's easy enough to talk about inherent strengths with the High Dividend ETFs.
Some of them have asset mixes so straitlaced you could press your pants with
them. However, instead of this commendable level of venal verbosity, we're
going to suggest investors get picky with this class of ETFs.
The problem with that "inherent strength" perspective is that even if you're
Archimedes, you still have to learn to swim.
High Dividend ETFs were in some cases about as theoretically safe as you could
get, and events shook the whole image to pieces in a matter of months. The
weak spot of the High Dividend ETFs was their assets, and the capital crash in
the finance sector, where a lot of higher dividends originate. The obvious facts
of the current market are that High Dividend ETFs have to be showing returns,
to justify investment.
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Last Updated on: 2010-01-14 02:03:40 |
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Quotes are updated automatically. Quotes are delayed. Etftips.com has not
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informational errors, incompleteness, or delays, or for any action taken in
reliance on information contained herein. By accessing the Etftips.com site, you
agree not to redistribute the information found herein. ETF Values can go up as
well as down.
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