As falling stock prices put a damper on exchange-traded fund industry inflows, dividend-focused U.S. ETFs have been moving in the other direction.
The category, with nearly 80 funds and more than $300 billion in assets under management, has pulled in $46 billion in flows year to date. That’s crushing the $34.4 billion that the funds have been bringing in annually on average for the past three years.
While dividend funds are mostly losing money this year, they’ve lost less than plain vanilla ETFs that are based solely on market capitalization. For example, the dividend-focused SPDR Portfolio S&P 500 High Dividend ETF (SPYD) is down a little more than 2% year to date, while the large cap SPDR S&P 500 ETF Trust (SPY) is down more than 16%. SPYD tracks the 80 companies in the S&P 500 with the highest dividend yields.
However, an equity fund needn’t be weighted by dividends or select stocks based on dividends to offer income. Research and analysis firm MSCI measures a variety of factors to which U.S.-listed ETFs are exposed. This includes yield factor, which is essentially based on dividend yield. A look at the top 10 U.S. equity ETFs in terms of exposure to the yield factor presents a range of funds.
Only three have the word “dividend” in their names, but just as many or more reference master limited partnerships or real estate. The factor exposures-to-yield ratio among the top 10 range from 2 to 3.44. Consider that SPY offers an exposure of just 0.04, while SPYD has a factor exposure to yield of 1.27.
The dividend yields offered by the top 10 range from 6.49% to 9.96%, and nine of the 10 funds with exposure to the yield factor are also included in the top 10 ETFs for yield factor exposure. The $24 million Hoya Capital High Dividend Yield ETF (RIET) actually has the fifth highest dividend yield among U.S. equity ETFs according to data from ETf.com. It’s not included in the comparison based on yield factor exposure (likely because MSCI does reviews annually and the fund has not yet been trading for one year.)
|Ticker||Fund||Inception||AUM||Yield Factor||Div Yield||YTD Return||YTD Flows|
|AMZA||InfraCap MLP ETF||10/1/2014||$330.62M||3.44||7.17%||31.96%||-$12.37M|
|MORT||VanEck Mortgage REIT Income ETF||8/16/2011||$188.53M||3.23||9.96%||-16.99%||-$56.11M|
|BIZD||VanEck BDC Income ETF||2/12/2013||$544.16M||3.23||8.87%||-4.61%||$70.30M|
|REM||iShares Mortgage Real Estate ETF||5/1/2007||$766.31M||3.23||9.85%||-16.74%||-$329.65M|
|KBWD||Invesco KBW High Dividend Yield Financial ETF||12/2/2010||$432.74M||3.00||9.65%||-11.32%||$10.68M|
|MLPA||Global X MLP ETF||4/18/2012||$1.29B||2.62||6.85%||27.65%||$38.22M|
|AMLP||Alerian MLP ETF||8/23/2010||$6.58B||2.53||6.58%||28.62%||$475.11M|
|KBWY||Invesco KBW Premium Yield Equity REIT ETF||12/2/2010||$294.48M||2.23||6.77%||-11.87%||-$0.34M|
|DIV||Global X SuperDividend U.S. ETF||3/11/2013||$711.97M||2.05||6.49%||-1.40%||$46.93M|
|XSHD||Invesco S&P SmallCap High Dividend Low Volatility ETF||12/1/2016||$25.75M||2.00||6.57%||-15.12%||$10.04M|
Source: FactSet, data as of 9/13/2022
Real estate investment trusts, MLPs and other so-called pass-through securities are known for their ability to produce income. It’s not surprising that the fund with the highest yield exposure is the $334 million InfraCap MLP ETF (AMZA). The fund also has an impressive dividend yield of 7.17% and an outsized year-to-date return of nearly 32%.
Meanwhile, the $1.3 billion Global X MLP ETF (MLPA) has a yield factor of 2.62 and a dividend yield of 6.85%. The $6.7 billion Alerian MLP ETF (AMLP) has been around since 2010. Its yield factor exposure stands at 2.53. Interestingly, AMLP has seen the strongest inflows of any fund in this group by far, gaining $475 million year to date, with the fund in second place, pulling in only about $70 million.
Other Pass-Through ETFs
The $748 million iShares Mortgage Real Estate ETF (REM) similarly tracks an index of commercial and residential mortgage REITs and has a year-to-date return of roughly 17%. It also sports the same factor exposure as the $185 million VanEck Mortgage REIT Income ETF (MORT) and comes with a dividend yield of 9.85%. MORT has the second highest yield factor exposure, at 3.23, and the highest dividend yield in the group, at almost 10%. That said, its performance is dismal, with a decline of nearly -17% year to date. REM leads the group in outflows, losing roughly $330 million year to date.
The $280 million Invesco KBW Premium Yield Equity REIT ETF (KBWY) is another ETF focused on the REIT space, but specifically targeting small- and midcap securities. It also weights its holdings by dividend yield. However, it’s done noticeably better than the other REIT-focused ETFs in the group, with a negative return of 11.87%. However, its dividend yield of 6.77% is also noticeably lower, and its yield factor exposure is 2.23.
Interestingly, only one of the funds with “dividend” in its name is in the top five funds by yield factor. The $417 million Invesco KBW High Dividend Yield Financial ETF (KBWD) has a yield factor of 3 and a respectably high dividend yield of 9.65%, which is not surprising, as its portfolio tilts heavily to small cap value and is weighted by dividend yield. The fund is down just 11.32% year to date.
If you’re looking for income, a fund that has “dividend” in the name might not be your best bet. However, if you’re selecting by yield factor exposure, you’re essentially selecting companies with the highest dividend yields. Funds tracking pass-through securities seem to offer the highest yields rather than funds specifically targeting the dividends of common stocks.
None of the ETFs in this group exhibited significant underperformance relative to the broader market, while some, especially the MLP funds, have significantly outperformed.
Contact Heather Bell at [email protected]