Dividend-Rich ETFs Haul In Huge Assets

March 15, 2013

What was behind the massive creations this week in the two dividend funds VYM and HDV?


Two dividend-focused equity funds hauled in massive assets this week, the latest sign investors are looking to payout-rich stocks at a time when various pockets of the bond market are looking overvalued at the end of a 30-year rally in fixed income and after five years of choppy post-crash markets that have favored bonds over stocks.

The Vanguard High Dividend Yield ETF (NYSEArca: VYM) and the iShares High Dividend Equity Fund (NYSEArca: HDV) sucked in major money in Wednesday’s session. VYM’s creations of more than $1 billion fueled a 20 percent rise in assets to $6.26 billion, while HDV tacked on $281 million in assets, a 10 percent jump that made it a $2.85 billion fund, according to data compiled by IndexUniverse.

“The chase for yield is on,” said Rick Vollaro, chief investment strategist at Pinnacle Advisory Group, a Columbia, Md.-based registered investment advisor. “They want something with yield, but they don’t want bonds.”

He quickly added that using equities as a yield-replacement strategy may be attractive but clearly has its problems, given the relative volatility of stocks.

Still, there’s plenty of anecdotal evidence that many in the world of investing and money management consider equities to be appropriate up to a point for use as income generators at a time when Treasury yields are looking terribly meager and, worse yet, the bond market may soon correct downward, raising the possibility of capital losses for some investors.

Wealthfront, the online, algorithmically based advisory firm that hired indexing legend Burton Malkiel even added dividend-rich funds to its asset allocation scheme as part of a broader initiative to expand income-rich choices. Malkiel, the author of the seminal work on indexing “A Random Walk Down Wall Street,” has himself been plain that high-dividend stocks make some sense for seniors just now.

In broad perspective, the massive flows into VYM and HDV are just the latest and perhaps most dramatic signs of an asset shift over the past year of more than $60 billion into various dividend-focused strategies. The vast majority of those flows have been into U.S.-focused stocks, and a healthy chunk is in emerging markets equities as well, as the tables below of data compiled by IndexUniverse show.

Top 10 Creations (All ETFs)

Ticker Name Net Flows ($,mm) AUM ($, mm) AUM % Change
VYM Vanguard High Dividend Yield 1,068.59 6,269.80 20.55%
HDV iShares High Dividend Equity 280.79 2,853.11 10.92%
DXJ WisdomTree Japan Hedged Equity 144.08 5,113.89 2.90%
XLF Financial Select SPDR 143.97 11,377.22 1.28%
CSJ iShares Barclays 1-3 Year Credit Bond 126.47 10,085.82 1.27%
MDY SPDR S&P MidCap 400 103.46 11,555.92 0.90%
IEMG iShares Core MSCI Emerging Markets 102.40 783.36 15.04%
TLT iShares Barclays 20+ Year Treasury Bond 80.93 3,237.08 2.56%
EPP iShares MSCI Pacific ex-Japan 74.91 4,614.46 1.65%
XLP Consumer Staples Select SPDR 69.68 6,362.76 1.11%
1 Year
Index Universe's Segment Title Net Flows ($, mm) AUM ($, mm) % of AUM
Equity: U.S. - High Dividend Yield 49,960.45 6,678.74 13.37%
Equity: Emerging Markets - High Dividend Yield 6,247.57 2,550.76 40.83%
Equity: Developed Markets Ex-U.S. - High Dividend Yield 2,392.69 855.63 35.76%
Equity: Global Ex-U.S. - High Dividend Yield 2,095.47 540.02 25.77%
Equity: Global - High Dividend Yield 872.23 475.32 54.50%
Equity: Australia - High Dividend Yield 75.22 4.82 6.41%
Equity: Asia-Pacific - High Dividend Yield 34.48 21.32 61.83%
Equity: Developed Europe - High Dividend Yield 33.46 22.97 68.65%


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