MW These dividend-paying stock ETFs are jumping as investors await 'Trump 2.0'
By Christine Idzelis
President-elect Trump's agenda appears to support 'a pickup in US GDP growth and possibly in inflation,' say BofA analysts
Hello! This week's ETF Wrap takes you inside the rally in dividend-paying equity exchange-traded funds as investors seek to position for President-elect Donald Trump's second term in the White House.
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Equity-focused ETFs with dividend-paying strategies were rallying this month, adding to their jump so far in 2024 after a broader stock-market rise following the U.S. election.
BofA Global Research's equity and quantitative strategists said in a Nov. 15 note that they saw potential for a rotation into cyclicals and high dividend-yielding stocks, particularly with "Trump 2.0 supporting a pickup in U.S. GDP growth and possibly in inflation."
The First Trust Dorsey Wright Momentum & Dividend ETF DDIV, the AB US High Dividend ETF HIDV and the Franklin U.S. Core Dividend Tilt Index ETF UDIV were among the top-performing exchange-traded funds in the dividend category tracked by CFRA Research this year as of Nov. 19, according to Aniket Ullal, head of ETF research and analytics at CFRA.
All three were beating the S&P 500's big gain so far this year on a total return basis, when looking at Thursday afternoon trading levels. The SPDR S&P 500 ETF Trust SPY has risen 4.6% this month as of Thursday afternoon for a total return this year of 26.3%, according to FactSet data, at last check.
The First Trust Dorsey Wright Momentum & Dividend ETF, whose top 15 holdings include a mix of energy, real estate and financial stocks, has jumped more than 8% this month based on Thursday afternoon trading, to surge about 35.6% in 2024 on a total return basis, FactSet data show. The ETF's top two weights as of Nov. 20 were energy infrastructure business Kinder Morgan Inc. $(KMI)$ and pipeline company Antero Midstream Corp. $(AM)$, according to data on First Trust's website.
There's been a "big rally in energy" this month, particularly after Donald Trump's victory in the presidential election, said Greg Reid, president of real assets at Westwood Holdings Group, in an interview. "A lot of people buy midstream for the yield," he said, referring to dividends reaped from equity exposure to energy assets such as pipelines for oil and natural gas.
"It's like a toll road" in the energy sector, he said of midstream infrastructure.
The actively managed Westwood Salient Enhanced Midstream Income ETF MDST, which invests in shares of North American midstream companies and U.S. master limited partnerships, has gained more than 7% in November based on Thursday afternoon. The fund also aims to provide income on top of the dividend yield by using an options strategy.
"It's a total return play," said Reid, adding that the ETF has been running a more than 10% yield, including about 5.5% from dividends plus around 5% from options premiums from covered calls.
The ETF, launched in April, distributes income monthly, as does the Westwood Salient Enhanced Energy Income ETF WEEI, whose portfolio includes oil and gas exploration and production companies in North America. The actively managed ETF, which began trading in May and also uses a covered call strategy, has gained more than 7% this month based on Thursday afternoon trading levels.
The energy sector has rallied since the election as investors expect looser regulation for the industry under President-elect Trump, said Reid.
The Energy Select Sector SPDR Fund XLE has jumped 10% this month based on Thursday afternoon levels, FactSet data show.
While U.S. energy companies may potentially benefit from increased exports of liquefied natural gas under the incoming White House administration, Trump's pledge to "drill, baby, drill" wouldn't necessarily increase E&P profits considering more supply could lead to lower oil prices, said Reid.
West Texas Intermediate crude oil prices have declined around 10% over the past 12 months despite heightened geopolitical tensions in the Middle East, trading at about $70 a barrel (CL00) on Thursday afternoon, according to FactSet data, at last check.
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Meanwhile, the actively managed AB US High Dividend ETF, whose holdings include Big Tech stocks, has gained a total 26.7% this year based on Thursday afternoon trading, including a 3% rally in November. The fund's top three holdings on Thursday were Nvidia Corp. $(NVDA)$ , Apple Inc. $(AAPL)$ and Microsoft Corp. $(MSFT)$, according to data on AllianceBernstein's website.
The Franklin U.S. Core Dividend Tilt Index ETF, which had the same top three holdings as recently as Nov. 20 based on data from Franklin Templeton's website, has rallied 3.8% this month, bringing its year-to-date total return to more than 27% as of Thursday afternoon.
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The biggest exchange-trade funds in the dividend-paying equity ETF category tracked by CFRA have been the Vanguard Dividend Appreciation ETF VIG, Schwab US Dividend Equity ETF SCHD and Vanguard High Dividend Yield Index ETF VYM as of Nov. 19, according to Ullal.
They each have posted double-digit gains so far in 2024, but their total returns lag the S&P 500.
The Vanguard High Dividend Yield Index ETF, with around $60 billion of assets under management, has the top performance of those three. The fund has rallied 3.8% this month as of Thursday afternoon for a 21.3% total return, according to FactSet data, at last check.
The larger Vanguard Dividend Appreciation ETF, with around $87 billion in assets, was up 3.7% this month for a 19.7% total return this year based on afternoon trade Thursday. The Schwab US Dividend Equity ETF, with around $65 billion of assets under management, has risen around 2.8% in November for a 17.5% total return in 2024 as of Thursday afternoon, FactSet data show, at last check.
Investors have poured money into dividend-paying equity ETFs at an accelerated pace over the past month based on CFRA data. The category attracted $4.6 billion of inflows over the trailing month through Nov. 19, more than doubling its monthly average so far this year, according to Ullal.
As usual, here's your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.
The good...
Top performers %Performance YieldMax MSTR Option Income Strategy ETF 30.0 United States Natural Gas Fund LP 12.2 YieldMax COIN Option Income Strategy ETF 12.0 YieldMax TSLA Option Income Strategy ETF 8.3 ARK 21 Shares Bitcoin ETF 8.0 Source: FactSet data through Wednesday, Nov. 20. Start date Nov. 14. Excludes ETNs and leveraged products. Includes NYSE-, Nasdaq- and Cboe-traded ETFs of $500 million or greater.
... and the bad
Bottom performers %Performance iShares Biotechnology ETF -3.7 ARK Genomic Revolution ETF -3.2 SPDR S&P Biotech ETF -3.0 First Trust NYSE Arca Biotechnology Index Fund -3.0 AdvisorShares Pure US Cannabis ETF -2.9 Source: FactSet data
New ETFs
-- Vanguard said Thursday it launched the Vanguard Core Tax-Exempt Bond ETF (VCRM) and Vanguard Short Duration Tax-Exempt Bond ETF (VSDM), both actively managed funds targeting the municipal bond market.
-- Fidelity Investments said Thursday that it launched five actively managed equity ETFs, including the Fidelity Enhanced U.S. All-Cap Equity ETF FEAC, Fidelity Enhanced Emerging Markets ETF FEMR, Fidelity Fundamental Developed International ETF (FFDI), Fidelity Fundamental Global ex-U.S. ETF $(FFGX)$ and Fidelity Fundamental Emerging Markets ETF (FFEM).
-- Well-known economist Nouriel Roubini and Atlas Capital Team Inc. announced Nov. 20 the launch of the Atlas America Fund USAF, marking Roubini's entry into the ETF market. The actively managed ETF was "designed to provide diversified, resilient asset exposure by combining US Treasury bonds, gold, REITs, and food commodities."
-- Brown Advisory said Nov. 18 that it listed the actively managed Brown Advisory Flexible Equity ETF BAFE, which aims to beat the S&P 500 through a diversified portfolio of stocks. It's the firm's first exchange-traded fund, launching with $913 million in seed capital from the firm's separately managed private-client accounts, according to the announcement.
-- TCW Group said Nov. 18 that it launched the two new actively managed exchange-traded funds focused on fixed income, the TCW Multisector Credit Income ETF MUSE and TCW AAA CLO ETF ACLO. The firm also said that it converted three fixed-income mutual funds to active ETFs, including the TCW High Yield Bond ETF HYBX, TCW Corporate Bond ETF IGCB and TCW Senior Loan ETF SLNZ.
Weekly ETF reads
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November 21, 2024 16:09 ET (21:09 GMT)
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