High-Dividend ETFs Are Having a Moment

new environment. And now what's interesting is one of those areas that is seeing inflows way beyond what they normally see and beyond their weight in assets, so they're punching above their weight is high dividend e t f s. And any analysts will tell you they get asked about income all the time, like that's like an evergreen topic.

So you have need for yield, Yet people are skittish to get that yield in the bond market right now because they know the fit is hell bent on raising rates, so they want yield still, and normally high divid and ETFs are not that great because they tend to hold energy and utilities because that's where high dividends are. But this year those sectors rule. So you've got this perfect one two punch in these ct s. I call it the sweet spot where they've got two things that people want,

which is that energy exposure and the high dividends. Um. And so they have taken in about dollars this year. That's already a record. And the problem I think they might take in fifty and they are not that big of a category. So this is a nice little feeding frenzy and we should really dive into this. I think it's a classic, UM you know how to play, uh episode? Okay, So joining us will be Todd Rosenbluth. He's a regular

on Trillions and he's got a new job. He's the head of research at Verify, as well as Susanne Woollie, personal finance reporter with Bloomberg Wealth, this time on Trillions, High Dividend e t f S. Todd, Susanne, welcome back to Trillions. Good to be here, Good to be with you all. Okay, So Eric set the table there. Things have turned really quickly and all of a sudden, a category that probably a lot of people weren't paying attention

to is something that people should be interested in. Todd, what kind of returns are we looking at in general in this category. So I guess to set the stage, we've got the SMP five hundred at the time we're recording this down twenty three percent. The high dividend yields tend to have have fallen half less than half of that ten percent, and in some cases they're close to

treading water for the year. So you would have saved two thousand basis points, perhaps depending upon whether or not you were in some of these dividend filding e t s. And and maybe if I can, if I can pare back for a second, and maybe you guys were going to do this. But there's two main types of dividend dts. There's dividend growth ETFs, where the companies have a long record of paying and growing their dividends, but the yields

are close to the broader SMP five. And then you've got these high dividend yielding ETFs that we're gonna talk about, where the yield is three, four, sometimes even five, and the companies that are constructed are based on the yield, not based on their record of paying dividends. And so I think that's an important distinction. It's not all dividend dtfs are the same as as I now say at Vertify. Okay, so, by the way, it congrats on that new gig. Before we go to Suzanne, I want to just ask you.

You and Eric always have these bets going comparrently. You know what bets are live right now, So there's no dividend bet. I will say that the left there might be by the end of the episode, though there might be. The last time that I was on here, Eric's sprung a bet on me um that I said yes to

on the fly, and I stick with that UM. So I'll highlight that one because that's the one I think he's more confident in any other, and he can perhaps highlight the one that he thinks I should be more confident. So last time we bet that Capital Group, which was at the time soon to launch actively managed equity t F. They subsequently did that in February. I believe in late February that they would gather have assets under management of seven billion dollars or more by the end of that

first twelve month period. Uh that is alive. Bet. They are have been growing assets. It's close to two billion dollars. I realized that if he'll do the math here for you and add that up, and it will be under seven billion dollars. But we're going to see an accelerated growth. So I'm still feeling very good about that one. But that one I could see coming closer to the wire than the next one that I'll let Eric set up

because I feel much more. I feel confident in in in E. S G. Yeah, So the Capitol Group, when I'm pretty confident, although they are a massive company and they know about this bet, and they can they can just move you know, a couple of billion if they wanted to, like they on the night before, they could just make Todd win. So they always have that lever

they can pull, and that makes me nervous. But otherwise, like that sounds like a Boomarati conspiracy theory there, I think, Yeah, I mean UM, and plus the market's going down, so that hurts assets. So I like my chances based on trajectories. But they always have that lever. But the other better we have is I bet that of E. S G t S would liquidate by the end of this year.

This is back when they had UM seventy nine or something, so I need about twenty or nineteen to liquidate by the end of the year, and so far I think only two or three have. But it's trending up. And if the market keeps getting awful and the E s G baggage keeps increasing, which it is six months, I think I've got a shot. I think my I'm like a fifteen to one shot to win that one. But I'm I'm a total favorite to win the Capitol Group one. And my recollection is that Eric has the upper hand

in this betting history. Correct. Yes, yes, we We've had a couple of close ones and then Todd was Todd was silent and grimacing. Okay, Suzanne, let's let's bring you back in. UM. I want to talk to you about when you talk to investors or advisors, how how do people feel about this this category in general high dividend. I think people right now feel like pretty good about it because they're looking for anything that has like the

whiff of certainty. UM. You know, having been in people have found themselves so you know, overweighted and tech not even realizing it, you know in the SMP UM and you know they are. Everyone is desperate for income, so you know, the big thing I hear about every advisor is talking about. Of course, is like Series I savings bonds, which track inflation because they're at like night point nine point six percent, but you can only buy ten thousand of them a year, so it's not going to do

a lot for your portfolio. So I mean energy has been hot, like you said before, energy and UM utilities, you know, So this is an area that, like Eric said, a lot of money is going into and a lot of people are talking about. I want to jump on in quickly if I can to say I wasn't grimacing. I was being polite and waiting for Susanne to be brought into the conversation because that's that's the appropriate thing

to do. UM. But I think to piggyback on on what she was saying, there's been just a search for income. You know, we've done surveys with advisors at Vertify and they're continually looking for alternatives to fixed income. So I know you've talked about covered call series of products beforehand on this platform. We've talked about, you know, inflation protection

you have on this platform. The high dividend yielding products have been around a while, you know, uh I shares in Vanguard have had products that of ten fifteen year plus histories, but they've they've they've come up when investors are seeking out that income component, and we've gotten now even more products than ever before to give investors and advisors choices. One of the key things here though, is that you know, the US tenure Treasury yield is now

up to three point two percent. That's pretty good. But these high dividend e t F s UM are going to yield. Some of them yield a little more than that, some a little less. But I think it's interesting just to note that I do believe investors just aren't quite They're just more scared of the bond market right now because that's where the FED has a direct impact. Whereas in and and with because bonds all all the rates are going up, all the new bonds you can get

a higher rate. It really questions the value of the current bonds over on the equity side. The other thing about this is, yes, you get the yield of it's around three to three for most, but that's double the S ANDPS yield and you get that pop because it's largely in energy and utilities UM and so I think that's also important is because the return is a yield in a way to UM by not underperforming. So it's the right yield. It's not just a yield, it's it's

a it's a it's a better yield. I think for many investors until the FED cools off, I just think the bond market is going to be a tough place. We've seen it in the flows in mutual funds in particular, a lot of older investors are bailing UM. So that's gonna be a constant drain on the prices of bonds for the foreseeable future. So UM, it's interesting how this works.

Sometimes an et F category just it just just troads along for a decade like oh yeah, whatever, and then bam, the star is just aligne and it's like got it's got what everyone wants. So todd as these stars sort of ALIGNE. Let's walk through some of the tickers that UM jump out to you. What's what's your number one? Because there's like what Tannard twelve in this category that have sort of attracted it engine. What's your number one? Yeah, well my number one or the number one, so you

know the most popular. Let's do let's do the number one and then you can do your number one. Sure, So the most popular of these ETFs this year based on my data, I'm sure Eric stated will agree with this is HDV. This is the I shares Core high dividend uh e t F. It's pulled in as we're recording this five and a half billion dollars. It's down

just one and a half percent. It's extremely cheap. UH. It's it's focused on those sectors that that Eric was talking about, not only but it has above average exposure to high dividend yielding stocks within energy and utilities. UM. I want to call out I guess two other ones, uh, that are one that is popular and one that I find to be under the radar. And I'm not sure why it's not as popular. So sp h D, which is in Investco SMP five High Dividend Low Volatility e

t F UM. I think I got that name right, and where the dividendendo low volatility is on this This is as the name suggests, it not only owns well, it starts with the SMP five hundred that's important, uh, and then it looks at companies that have both a low risk profile less volatility as well as an above average dividend yield. It's pulled in about a billion dollars this year. It's down four and a half percent, so

doing still much better than the SNP five hundred. And then there's an alps UH sector dividend dog ETF the tickers S, D O, g UM. I think Suzanne has a dog that's staying with her. I've got a dog sleeping not that far from me. That ticker S dog

is just fun to say out loud. But what's compelling to me about this is that it's equally weighted at the highest dividend yielding stocks across all of the sectors, so it isn't dominated by energy and utilities that has some technology exposure less than a broader market, some financials exposure, I think, less than a broader market, but it's equally

spread out there. UM, and I'm a little surprised it hasn't pulled in that much money is I think it's just under a hundred million in net influence this year. But it's it's performing well, and it's it's well constructed. So I guess those are the Those are three of them that jump out to me. I'm confident my fellow et f analyst NERD is going to have three different ones. How do you feel about the reads? It has a

big slug of reads, doesn't it? Real Estate investment trusts? Yeah, I mean real estate is you know, important sector to have exposure to. It tends to historically do okay during a rising interest rate environment and real estates different than it was years ago. Especially we've got these former communication services companies American Tower, Crown Castle that are above average dividud yielders. So I like that it's got exposure to it to real estate. That's that's a important thing to

be aware of. Some of these don't have exposure to real estate. They intentionally carve out. Real estate is one of the sectors. Some don't. So it's important to take a look at it and do do some homework on these ETFs. Yeah. I mean I think if if you if they yield is really high or the returns are just abnormally good, it's probably concentrated in something like it probably has more energy um or more reads. I mean,

I think that's something you have to weigh. And you know, this is why Todd and I have job security because even amongst high divided ETFs, which they're all have sounded the same. There are a lot of differences. And I actually went through when I wrote my note two weeks ago and just look at the prospectives for how they're designed, and like I mean, I guess you could say they're all similar, but they start with a different universe, like UM,

the I Shares HDV. The I shares one starts with the morning Star US Market Index and then it picks the eighties stocks with the strongest UM, financial health and dividends. So there's a fundamental aspect to that one. And then it waits it by dividends. So then their s P y D, which is the SMP five hundred is the universe. It takes the eight highest then it kind of equalates it more or less um. And but both those and there's the feet. Both of those are ten basis points fee,

which is really good. That's another thing about this area. It's very cheap, like compared to like buying an dividend manager E t F back in the day. This is like dirt cheap. It's a it's really a great service, I think to have this kind of access for these costs UM, but there are difference this year and then like the Vanguard one which is very popular v y M that uses the Footsie universe and it picks five hundred companies, So obviously that's not going to pop as much.

So I love I love the field number of holdings. That's an underrated field for E t F in my opinion, because I think most people in sniff test wise can can understand like, oh, it holds three D stocks, okay, versus like fifty or eighty you know, uh, that can tell you how you should use it. So I would say for the ones that hold a D you really should consider that like a satellite position, um, whereas you could almost move in a v y M a little a little more into your core, I mean, depending on

what your goal, your goals are UM. And then there's you know, I guess there's a slew of other ones. Everybody has one, Wisdom Tree has one, First Trust has one. When you guys break the numbers down for this category, I mean there are we've talked about energy and utilities. Is there a given company or stock that ends up basically everywhere at a high percentages it like Exxon shows up everywhere in this category, so it I guess it

depends It depends upon the criteria of it. So if you're looking at high dividend, you know, if if the focus is above average dividend yield, I would think companies like Exxon Mobile and Johnson and Johnson, those uh are higher divd in yielding stocks. Verizon perhaps if communication services part of it, that's that tends to happen. But I want to just if I can, for a second, go

back to what Eric said. The number of holdings is important, but the other thing that he said that I'll agree with is how concentrated are those holdings and whether there's equally weighted aspect to it or not. So HTV that I shares core hygh divid and DTF has seventy five stocks. That's actually about what you'd find within the s dog one I keep referencing. But x On Mobile is nine of HDV. It's going to perform better when energy does better because and when Xon in particular does better because

of that concentration. It's going to struggle that same way if a company or two that that's heavily weighted underperforms. So I just looked up x in and then I searched for high dividends it's in most of them. Um. So, first first point here is if you're an E s G type, do not invest in high divid and ETFs, which which brings me up to the problem with the s G and being moral when you invest is at some point the money is gonna win, You're gonna go. You know, I need the yield, I like the return. Uh,

screw it. That's a one point. The second point is if you look at Exxon and you look at something like HDV, XN is an eight point seven percent waiting in that one, But then in v y M I'm looking here, XN is a much more tame two point six percent waiting. And that's going to happen throughout these e T f Uh. Some stocks are going to have a much higher weighting. Um, I think you tend to find like the Van Guardian ones are going to be like more market cap weighted, so XN couldn't possibly be

eight percent. But then, um, everybody else, Wisdom Tree, even I shares, You're gonna find some weight equally or by the factor itself. And if it waits by the factor itself like dividends, you clearly are going to have some stocks that dominate the fund and that can be a little scary because yes, this thing yields a lot, but now it's really controlling your fund. So I think it's really interesting, and I think some investors probably would opt

for the equal weighted version UM on these UM. There's there's just these are probably the greatest example on like the due diligence checklist for an ETF because there's several ways these could go and then the you know obviously that this waiting and the UM expense ratio and all this just kind of adds up to a different return stream. Although I gotta say, if I look at them, they're all doing pretty good relatively SMP. There's there's no real

crazy outliers that it's like, well, what's this doing? It's not labeled correctly. I mean, you really do get high dividends with most of these, but their their approaches are pretty different. Susanna. Want to bring you back in. We didn't get to hear some of your favorite tickers yet UM in the space. Which ones have we not talked about that UM that are on your list. I mean I was looking at h DV, like we talked about

the ice shares one UM. What was interesting to me that I sort of wanted to ask you guys about was that you know so much of it. The main the biggest holdings in that fund are in the top

of the SMP, the top twenty stocks the spire. So it just made me sort of laugh in a way because you know what we've seen as our portfolios dominated by the top ten percent, the top ten stocks in the SMP, and now we're going to move into these high dividend yield e t f s and get into like, you know, number ten to number twenty in the SMP. Five d um, But I don't know hdv V I am. I was looking at when I was curious that I wanted to run by you guys was what international dividend

e t f s should we be looking at? And do any of them have a big chunk, big mix of US and international dividend ETFs dividend stocks? Yeah, I mean most of these are going to have some international version. I mean these companies d it's like, um, any sort of product. You know, you've got coke, diet coke, cherry coke. It's just like high divid international, high different global. So like for example, v y M has v y M I,

which is the International High Dividend, which is very similar. Um, so yeah, they're they're gonna do that, and I'm just curious. Let's look at the yield difference between the two. So if v y M gives you a yield of two point eight percent, which is low, but again Vanguard when they view factors, they really water them down by market cap waiting. Anyway, the International one yields double that four point seven percent, So you know you're probably gonna get

a lot more yield over there. But that then you're in international stocks, which have you know, can have issues. Um, a lot of people like to stick in the US. I don't know if Todd, do you have a take on like if some if your mom came to you and one at high dividends, would you center a US

or international? Well, I think you should. I think if you're gonna have international equity as a carve out of your portfolio, then and it certainly can make sense to have something like v y M I, which is that a Vanguard High Dividend Yield International E t F as

an example. I don't know that I would be seeking just income for that, I would be using that as my international slug of the portfolio um But Susan your question prompted me to just go into too quickly search for it because I actually had forgotten this e t F existed and maybe there's others, But there's a spider SNP Global Dividend e t F W d I V which is actually much more internationally focused than than your typical UH all country world or global approach to it.

So it only has about in the United States and then Canada, Japan, Hong Kong, Switzerland, UK rounded out, and so I think that that's being constructed in part based on the yield. This is the challenge when you try to do this on the fly, is to the rules of of an index. But I think that is being constructed based on the yield, and that's why perhaps um or and that it has to have a criteria of

having raised a dividend for a period of time. But this is just an example of you can get a global equity dividend yielding portfolio in the mix, and just real quick I found a good one here. Fidelities International High Dividit ETF SO vanguards a conservative take on that, but the fidelity kind of goes all the way. So if this thing yields a very healthy five point three, which is looks very attractive relatively speaking. Um, and the holdings are pretty mixed. You got a hundred and fifteen

holdings and they're in a lot of different sectors. It's not just like energy, its banks, insurance, telecom, uh, some mining, chemicals again very not very not e s G. And it's spread up between countries Canada, Japan, UK, France. UM and interesting the pe on this is nine point seven. I mean that is low. So you're you're kind of getting a value trade here too. I wonder if this thing is out performing this year. Let me see, so this is the year today it returns for this it's

down seven. So that's the thing, like, even though you have all that good value and energy exposure, you're still down, although you're down less, whereas the ones in the US or some of them are all close to actually you know, being flat. I would add though, Susanne. And again I love it when you bring when somebody brings in a question for the rest of us and keeps us on our toes. When you're investing internationally, you know, looking at

currency is important. So again, doing some quick due diligence. Here dB a W, which is an ex tracker all country world x US hedged equity ETF, so it's going to hedge out that currency risk. Uh. The impact of the dollars has weighed significantly on international slices of a portfolio,

so hedging that out has been rewarding UH in general. Um, and I presume has been the case for dB a W. So just again, lots of tools in the toolbox for an advisor to sort of through and do some homework on, and just a little digging that we're doing here on the fly. Okay, I thought of a bet and then I'm gonna throw out there for for Todd and Eric, which is, if this has already been a record year for the high dividend et F category, how big is it going to be by the end of the year

overall assets under management in this space? What's it gonna be? How about we do U two flows. So here's the numbers, Todd, So they've taken in twenty five billion this year. Now, last year they took in about nineteen billion, which was their old record, so they've already beat their old record. So I would, honestly, I would put the over under it fifty, which would be double maybe even may maybe. Um, I don't know, you're gonna take the Are you gonna

take the over or the under? I'm taking the over. I'm not letting him think about it. I'm taking the over on this. Yeah, I gotta say over on this. You can want to set it higher, you can set it higher. I'll take the fifty one. I sometimes I sometimes feel like betting against Todd's excitement is a winning trade. But in this case, I just these things are so perfect for this year that I can't. I cannot take the under because I just don't feel it as much as the other one. So I gotta, I gotta wanna

go to the standown. I wanna go to you want to go to fifty five? I'll take under a hundred? No, Well, come on, how that's that's crazy, Susanne. Where should we put the number? I don't know I'm going if I'm I think fifty sounds reasonable to me. We gotta, I'm gonna che it up. We're gonna we're gonna say fifty, Eric,

are you over or under that? The big problem with that bet, the under the underbet to me would be that maybe they're the recessionary numbers, Like there's some economic signals that say the FED his like messed up to the actual economy, and they back up all of a sudden. All the stocks and these funds are going down. That's why you can you can pick the under if you want.

But I don't think the Fed's going to do that because I think that because inflation is the number one issue amongst voters, and the mid terms are all the way in November, they're going to be hell bent no matter what the economy says. So it's almost like betting, well the FED back up after the mid terms and before the end of the year. It's a very specific bet on that, in my opinion, And I just don't know if I feel like I want to bet on that. I just because I'm I'm I'm just not. I don't

I don't have a clear vision the over. Yeah, I got the I got the over on And see what happens Joel when he throws the bet at me, I go, yeah, I'll do it. When you throw the bet, he's like, I'm thinking about it, and he threw in the In my opinion, so he's covered himself from a comp well perspect. Most of the time, the bets between Todd Night happen organically on Twitter, where he'll have a take. I'll say I don't and then he'll be like no, and I'm like all right, like you know, throw my wall on

the table. Let's let's see if you really feel this way. All right, Well, you guys can after the episode wraps. I mean, everybody's out there, we'll see if we can come up with something. Got the bet. No, the bed is fifty, the bed is over on it and if you want to slide the number up, slide the number up a little bit. That's the bet. I'll bet your coffee. We'll take this to the Twitter and we'll see what the Twitter has to say. Um, you gotta show them.

I was just wondering if there's anything interesting to note about sort of average market cap um. It seems like the Vanguard one was average weighted market cap was like a hundred and seventeen billion. But there's something are much

TV larger and smaller. Yeah. I think that's important is to take so that we're going through a number of things that are worth looking at that that are easy, Uh, do your homework, checklist, things of understanding how many stocks it has, understanding the sector exposure that it has or is allowed to have, the concentration, and then I think looking at the average market cap can tell you that so these dominant you know, something that's got over a

hundred billion dollars as an average market cap or even higher, shows you that they're focusing on more of these mega cap companies those might be more stable, uh in terms of a quality perspective, but also have some less growth potential. Yeah, there's one et f that we didn't you know, that we didn't touch on that that caught my eye, which is from global X the tickers D I V. It has super Dividend in the name because it's the highest

yielding stocks that they can possibly find around. And the market cap on that is thirty one, uh, you know, thirty one billion dollars. And it has a number of companies in its top ten holdings that I have heard of, like IBM and Kellogg and a number of companies that I haven't heard of, which just tells you that it's fishing in a in a much broader than just the

S and P five. Yeah. I mean, by the way, we should highlight that one We've really covered the more mainstream ones, but there are a couple wild and crazy ones. Um Estive is an interesting one. It's been around a long time. Um it holds the hundred highest yielding companies in the world, point blank. So when you have that as your mandate, you're gonna you're gonna buy some really wacky stuff. But it yields. That's a crazy yield for stocks. But you're gonna own stuff like you probably own MLPs

in here. You probably own rates. Your allocations you're going to take you to China, Brazil, Hong Kong, alata e m. It's risky, but you know, if I call this thing a yield seeking missile again, if it's a satellite position and you want just a little bump a yield, you would obviously need to allocate less. But this thing can be volatile. Dude. The average pe on this is five. Holy molly, that's like Nigeria. I mean, there's nothing five.

By the way, the last time I saw a p of five was when we covered the airline et F before the pandemic. I was like, these stocks are so beaten down. That had a nice run. But I will say Nigeria has been at five. For like fifteen years, I used to look at et s by low pe thinking like they were deals. Believe me, they can be deals for a long time, like some of these country e t s especially, but five is really low. That means you're buying some crap because it means that active

managers hate these stocks. But they held a lot. That's what you get, I think. But I think you mispronounced value. I think you called it so, I think you called it something else. Just to clarify, uh, And and this is a good e t F two s d I V. The one I was referencing was just d I V, which is the US version of this but from global X two very worthwhile ETFs that are under the radar for investors and advisors to take a closer look at. Todd.

You haven't been on the show in your new capacity, but for gotta ask, do you have a new favorite et F ticker? Okay, so I'm gonna take the liberty since you since I'm part of a company that has index capabilities, I'm going to both name something that is cool and interesting that we're tied to and in full disclosure, we are tied to it. But there is a procure et F that just came out under the ticker FEMA f E M A UM, which is a disaster recovery effort.

And I just think that just first of all, no one should ever have to say FEMA out loud historically in in but now it's just it rolls off the tongue to me. Um, And it's just a cool sounding, you know, cool name uh for for it. So my my prior submission, I used to like p b J that's an investco et F that's food related. UM. I

think I continue to like that. Um. Yeah, we're kind of in disaster mode though it's p BJ sounds great, you know when when you're in a bull market, but now that we're in a bear market, I think THEEMA is appropriate. Uh. Susanne, we haven't asked you for a while. Uh.

Any new favorite E t F tickers? Um? No. I still love cows CEO w Z, which I think is timely because it's a cash flow um E t F. But there's what I wish was in there, like ouch oh U c H. It's actually the ticker for a company called Occupational Urgent Care Health, which I don't know what that is, but I love that ticker. Good for the times as well. But by the way, can I just comment on cows. This is a very relevant issue.

Is the PACER US cash cowsf This thing is like in the top twenty of most inflow et f s. PACER has never had a hit like this, and it tracks the free cash flow, which is very valued in this kind of market. But again, where do you get You get a lot of energy basically energy. Anything that act that has energy in it, even if its name is high dividend or cash flow, is really doing well this or uh, simply because energy is the only thing up and anyway, just but I like cows uh as well.

I think that's a good one. And by the way, that it has a sister or I get young sibling version calf, which is small free cash flow. See it's adorable. I love that's even better. Yeah, and it fits in well. It fits in well with this theme because the free cash flow leads to dividends, and so cows and calf are are other ways to get above average dividend yields in this environment. So good call Susanne, wow wrapping it up, Todd, nice all right, Todd, Susanne, thank you. For joining us

in front. You're welcome, Thank you, thanks for listening to trillions Until next time. You can find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcast, Spotify, and wherever else you'd like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show. He's at Aricultunist. This episod, sort of Choyance, was produced by Magnus Hendrickson. Francesca Levie is the head of Bloomberg Podcast. By h m hm h