A High-Payout ETF Checkup

January 09, 2012

It’s a bird, it’s a plane, wait, no, it’s a SuperDividend ETF! Or is it?

Now that Global X’s SuperDividend Fund (NYSEArca: SDIV) has been around more than six months, it’s worth seeing if it has lived up to its enticing moniker.

Back in June when SDIV launched, my colleague Olly Ludwig wrote about its strategy and intentions. He referred to the Vanguard Dividend Appreciation ETF (NYSEArca: VIG) to put SDIV’s launch in perspective. But that’s a little bit off the mark, because VIG holds U.S. companies, whereas SDIV and other ETFs like it are global in focus, which is a whole different ball of wax, especially these days.

So, considering the extreme global volatility that took place in the second half of 2011, it’s worth looking at SDIV and other funds like it. After all, many of the companies with high dividend yields are in the financial services industry—the very epicenter of the entire global economic crisis.

I’ll say this right off the bat: SDIV and others of its ilk didn’t perform well in the months following SDIV’s launch. Their high dividends pretty much got wiped out by market declines. But I’m getting ahead of myself.

First the details: SDIV is based on the Solactive Global SuperDividend Index, which equal-weights 100 companies ranking among the highest-dividend-yielding equity securities in the world. SDIV has an expense ratio of 0.79 percent.

I’d be remiss if I didn’t mention the Guggenheim ABC High Dividend ETF (NYSEArca: ABCS), which launched just prior to SDIV. The Guggenheim offering has an expense ratio of 0.65 percent and is based on the BNY Mellon ABC Index. It has 30 holdings, including U.S. equities, U.S.-listed ADRs and locally listed companies in Australia and Canada. The index selects the top 10 stocks with the highest yield for each country, and then weights them by market capitalization.

Other competing funds to compare the Global X and Guggenheim funds with are the WisdomTree Global Equity Income Fund (NYSEArca: DEW) and the First Trust Dow Jones Global Select Dividend ETF (NYSEArca: FGD).

SDIV/ABCS/DEW/FGD Performance: June thru Dec 2011

As you can see, neither of the two newer “super” dividend funds has fared well since inception.

ABCS and SDIV lost over 13 and 14 percent on a total returns basis, respectively, since June, while DEW and FGD saw more muted losses. The stark reality is that high dividend yields on these funds weren’t enough to stem the tide of huge sell-offs in the underlying shares. It does investors little good if a fund has a 5 percent dividend yield but share prices fall by 19 percent.

In fact, yield-hungry investors targeting these relatively new funds would have been far better off sitting on the sidelines in zero-yielding money market funds than in either SDIV or ABCS. The truth is, in fact, that none of the global dividend funds has performed well since June. But the two new ones have performed the worst.

On the surface, it would be easy to assume that both funds must have gotten clobbered by the sell-off in financials, but that’s not necessarily the case.

 

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