Recent market fluctuation has caught many investment strategies off guard. Bloomberg reported that 'Ex-Goldman Traders’ Hedge Fund Shuts as Macro Strategy Slips'. For many income investors, however, dividend stock ETFs have been popular in their income producing portfolios. Let's review how these ETFs have been doing recently.
The following table shows the recent performance ranking:
| Assets Class | Symbols | 10/13 Trend Score | 10/06 Trend Score | Direction |
|---|---|---|---|---|
| PowerShares HighYield Dividend Achievers | PEY | 1.58% | -0.2% | ^ |
| iShares Dow Jones Select Dividend Index | DVY | 1.39% | -0.96% | ^ |
| Vanguard High Dividend Yield Indx | VYM | 1.29% | -1.96% | ^ |
| First Trust Value Line Dividend Index | FVD | 0.28% | -2.15% | ^ |
| SPDR S&P Dividend | SDY | -0.69% | -3.04% | ^ |
| Vanguard Dividend Appreciation | VIG | -1.04% | -3.98% | ^ |
| SPDR S&P 500 | SPY | -2.2% | -5.55% | ^ |
| PowerShares Intl Dividend Achievers | PID | -2.71% | -5.81% | ^ |
| iShares S&P U.S. Preferred Stock Index | PFF | -2.82% | -5.36% | ^ |
| iShares Dow Jones Intl Select Div Idx | IDV | -3.03% | -7.92% | ^ |
| SPDR DJ Wilshire Intl Real Estate | RWX | -5.26% | -10.35% | ^ |
| iShares MSCI EAFE Index | EFA | -5.5% | -9.73% | ^ |
| WisdomTree Emerging Market Equity Income | DEM | -6.66% | -10.13% | ^ |
| iShares Dow Jones US Real Estate | IYR | -6.72% | -8.22% | ^ |
| iShares MSCI Emerging Markets Index | EEM | -10.16% | -15.67% | ^ |
The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).
It is thus very encouraging that most US dividend stock ETFs have positive momentum scores, compared with the negative S&P 500 SPY's score.
However, international dividend ETFs (such as IDV, PID) and emerging market ETFs (DEM), as well as REITs (IYR, RWX) are all still in the negative downtrend at the moment.
Let's see how the asset allocation portfolios have been doing recently:
| Portfolio/Fund Name | Since 2001 | 2011 YTD | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|---|---|
| Retirement Income ETFs Strategic Asset Allocation Moderate | 8.29% | -2.69% | -2% | -29% | 9% | 44% | 3% | 7% |
| Retirement Income ETFs Tactical Asset Allocation Moderate | 10.42% | -3.96% | -3% | -18% | 9% | 74% | 8% | 58% |
| SPY | 1% | -3.75% | 4% | 4% | 8% | 23% | -1% | -9% |
| VBINX | 4% | -0.74% | 4% | 14% | 9% | 46% | 3% | 10% |
[Click to enlarge]
Five Year Chart
It is clear that the diversified asset allocation portfolios have been hurt due to exposures in non-US dividend ETFs and REITs. However, if one expanded the horizon to more than 10 years (since 12/31/2000), one can see that the diversified asset allocation portfolios have outperformed both SPY and Vanguard Balanced Index Fund (VBINX, 60% US stocks, 40% US bonds) by a significant margin.
The takeways from the above are
- US dividend stock ETFs are doing better than their international peers. High quality stocks have done better during a market weakness. This is consistent with our belief that was outlined before.
- Income investors should stick to a diversified approach that will pay back in the long term.
Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
