As of 2023, investor inflows into dividend ETFs have seen a staggering 99% decrease compared to the record levels observed last year.
Source: Bloomberg Intelligence
This year, investors have largely abandoned dividend-paying stocks.
During the 2022 bear market, as the Federal Reserve significantly raised interest rates, investors flocked to dividend-paying stocks, hoping to hedge risks by receiving dividends.
Companies that pay dividends are generally considered safer and more stable compared to non-dividend-paying ones. With the stock market plummeting by over 20% last year, investors sought "safe havens," and at least in the short term, value and dividend-oriented stocks outperformed the broader market, with declines smaller than the S&P 500 Index (SPX).
The strong demand can be glimpsed from the collective inflow of funds into dividend ETFs last year, reaching a record-breaking $62.1 billion. 2021 also showed robust performance with $41 billion flowing into dividend ETFs. From 2021 to 2022, investors collectively purchased over $100 billion worth of dividend ETFs.
However, this trend has encountered challenges this year as investors chased high-flying large-cap technology stocks, essentially reversing the trend of safe trading. Only three large-cap tech stocks pay dividends: Apple (AAPL), Microsoft (MSFT), and NVIDIA (NVDA), and their dividend yields are very small, typically excluding them from dividend ETFs.
Bloomberg data shows that, as of 2023, investors have only bought $786.8 million worth of dividend ETFs, marking a 99% decrease compared to the record inflows observed last year. In contrast, investors have been pouring into technology stocks amid the artificial intelligence frenzy, with the Nasdaq 100 Index surging over 50% this year.
This year, investors' reluctance towards dividend ETFs is also attributed to their underperformance. The previously popular Vanguard Dividend Appreciation ETF (VIG) has only seen a modest 10% increase year-to-date, approaching half of the 19% gain in the S&P 500 Index. Meanwhile, both the Schwab US Dividend Equity ETF (SCHD) and iShares Select Dividend ETF (DVY) are currently in negative territory.
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