SPYD ETF: Don't Be In A Rush To Buy

seekingalpha07-31

We Are Introduction With the US Fed poised to cut benchmark rates in September, yield-chasing investors who are on the lookout for diversified access to high-yielding US equities may view the SPDR ...

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SPYD tracks the S&P 500 High Dividend Index, and as the name implies, this tracking index focuses on the prominent high-yielders that comprise the S&P500. To get more specific, the key metric in focus is the indicated annual dividend  yield, which is just a function of the most recent dividend paid  as a function of the share price at the date of rebalancing . It is unfortunate that SPYD does not supplement this metric with other gauges that provide some context on dividend coverage or dividend sustainability. YCharts Nonetheless, as talks of rate cuts have gathered steam over the past month, the benchmark index hasn't made a great deal of progress and is essentially flat; yet, the high-yielding cohort of the S&P500 has quietly notched up g","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"FDN":"First Trust Dow Jones Internet I","VYM":"红利股ETF-Vanguard","BK4588":"碎股","BK4585":"ETF&股票定投概念","SPYD":"SPDR Portfolio S&P 500 High Dividend ETF","BK4550":"红杉资本持仓"},"translate_title":"SPYD ETF：不要急于购买","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"VYM":1,"FDN":1,"SPYD":1,"US3Y.BOND":0.9,"US7Y.BOND":0.9,"US6M.BOND":0.9,"US5Y.BOND":0.9,"US30Y.BOND":0.9,"US2Y.BOND":0.9,"US12M.BOND":0.9,"US10Y.BOND":0.9,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6},"content_text":"We Are Introduction With the US Fed poised to cut benchmark rates in September, yield-chasing investors who are on the lookout for diversified access to high-yielding US equities may view the SPDR Portfolio High Dividend ETF (NYSEARCA:SPYD) as a tempting prospect. SPYD tracks the S&P 500 High Dividend Index, and as the name implies, this tracking index focuses on the prominent high-yielders that comprise the S&P500. To get more specific, the key metric in focus is the indicated annual dividend (IAD) yield, which is just a function of the most recent dividend paid (excluding special dividends) as a function of the share price at the date of rebalancing (in SPYD's case this is the last business day of June and December). It is unfortunate that SPYD does not supplement this metric with other gauges that provide some context on dividend coverage or dividend sustainability. YCharts Nonetheless, as talks of rate cuts have gathered steam over the past month, the benchmark index hasn't made a great deal of progress and is essentially flat; yet, the high-yielding cohort of the S&P500 has quietly notched up gains of closer to 7%. So, should you be jumping on this bandwagon as well? Well, SPYD does offer some promise on account of a high yield (mainly on account of REIT exposure), no top-heaviness, and a relatively low RS (relative strength) ratio that has the potential to mean-revert. However, it is still questionable if SPYD would be a consummate option to pursue. Regardless, here are our big-picture thoughts on how this ETF compares against a popular alternative, and also some thoughts on the dominant sector exposure and the technical backdrop. SPYD Versus VYM The other diversified equity product that typically crops up in conversations about high-yielders is the Vanguard High Dividend Yield ETF (VYM). Note that VYM has been in this business long before SPYD, making it debut in November 2006 (SPYD came to the bourses around 9 years later). The longer listing period has played a part in the former accumulating an impressive AUM of over $66bn, which is well over 10x the AUM captured by our focus ETF. Investors may also prefer to go with VYM as it is slightly cheaper (an expense ratio of 0.06% as opposed to 0.07% for SPYD), and more stable and tax-efficient. VYM's annual churn is a miserly level of just 6%, whereas almost half of SPYD's portfolio gets churned every year, which is not very efficient from a tax angle. A higher level of churn is to be expected as SPYD focuses on a much smaller pool of stocks (just 75 stocks), whereas VYM covers over 550 stocks in total. Ironically, despite touching only 75 odd stocks, some credit must go to SPYD for not ensuring a top-heavy portfolio; during the rebalancing dates, all stocks are equally weighted, and on account of this, the top 10 only account for 15% of the total holding. On the other hand, VYM which spreads its wings across a much larger pool of stocks, sees its top 10 stocks take up a larger share of the portfolio (25%). Whilst SPYD may not suffer from top-heaviness, it is certainly dominated by mid-cap stocks alone. This cohort accounts for 70% of the total portfolio, with exposure to giant caps and micro caps, virtually non-existent. In that regard, VYM comes across as more well-balanced, offering decent exposure to stocks of differing market-cap. From a yield perspective, SPYD dazzles with a figure that is 140bps more than what VYM offers (2.88%), but do consider that over the last 3 years, SPYD's dividend outflows have actually declined, whereas VYM is still growing its dividends. Due to the recent dividend track record, SPYD's current yield also lags its historical average, by a much larger margin, relative to VYM's differential vs its long-term average. As far as valuations go, there isn't a lot to split these two products (a differential of just 0.8% between the P/E ratios of the two ETFs), but note that VYM's holdings are poised to offer better long-term earnings growth of over 1.5% Seeking Alpha, Morningstar YCharts Also, what's dispiriting to note is that since SPYD got listed, it has mostly underperformed VYM, with the gap in performance widening since the onset of the pandemic. It isn't just the sub-par return profile that is concerning; SPYD also has a rolling risk profile that is currently around 200bps higher than VYM. YCharts Unsurprisingly, this also means that it doesn't quite have a good track record of risk-adjusted returns, be it on a 3-year basis or a 5-year basis. Relative to their respective standard deviations, note that VYM does a better job of facilitating superior returns (versus the risk-free rate). YCharts If you only want to determine excess return capability in the face of harmful volatility alone, we can look at the Sortino ratios, and even here SPYD lags its larger peer. YCharts Closing Thoughts - Is SPYD A Good Buy Now? As noted in the previous section, SPYD does have some decent qualities, but its sub-par risk-adjusted return track record is a cause for concern. SPYD's high yielders may also face some additional interest as their relative strength ratio versus the broader S&P 500 index is not far from record lows, and is only a third of its long-term average. YCharts Some investors may also be enthused to note that SPYD tilts quite strongly towards the rate-sensitive real estate sector (VYM does not cover REITs at all) which may get a boost when the Fed shifts to a rate-cutting stance. However, investors should still note that the real estate sector is likely to offer the weakest earnings growth outlook (only 5.5%) for the next calendar year amongst all the sectors that comprise the S&P500. FactSet Finally, if we look at SPYD's weekly imprints over the past two years, we can see that once again it has now reached a terrain that has been notorious for seeing additional supply of the stock (areas highlighted in yellow). We may not necessarily see a repeat of the same, but we feel it would make better sense to deploy funds at lower levels where the risk-reward is more favorable. It's also worth noting that the RSI indicator is hardly a breath away from hitting overbought levels. To conclude, we don't believe SPYD would make a good BUY now.  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