The more you investigate, the more you read articles that promise “lower risk and higher yield.” For the most part, you will get a solid run-down of investments with less historical volatility than the S&P 500 as well as a current yield that is greater than that of the U.S. benchmark.
Here’s the problem: Few financial writers will explain the harrowing facts about systemic risk; that is, scores of dividend funds fared far worse than the market at large in 2008, and with much greater volatility, due to their exposure to financial companies.
Granted, many of the funds that are being recommended today in the dividend space have been “re-tooled” to exclude financials or minimize their inclusion. On the other hand, most of these ETFs still correlate very highly with the market at large. In other words, wild price swings may still in the dividend fund cards.
In truth, I do like the ability to exclude/minimize financials in funds like WisdomTree Dividend ex-Financials Fund (DTN) or PowerShares S&P Low Volatility (SPLV). Yet I realize that I cannot avoid the choppy stock seas altogether.
And then there’s the question of whether or not it even makes sense to opt for defensive equities at this stage in the “common sense” bear. For instance, over the last 9 months, both Verizon (VZ) and AT&T (T) have beaten the broader U.S. equity markets. And Telecom ETFs typically generate the highest yield of any sector fund.
Of course, some folks may feel comfortable picking Verizon over AT&T, or vice versa. But if you’re one of those who prefers indexing to individual stock picking, owning the highest yielding space in equities via a Telecom ETF may be your ticket.
Keep in mind, though, you won’t be the only person chasing yield in a low interest environment. What’s more, Q4 historically belongs to the risk-takers in cyclical segments like energy, tech and consumer discretionary.
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.