Claymore's New High Income ETF: Markedly Different Than Its Peers

Claymore Securities launched two new exchange-traded funds on the American Stock Exchange on Monday, June 25: the Claymore BBD/High Income ETF Index Fund (AMEX: LVL) and Claymore/KLD Sudan-Free Large-Cap Core ETF (AMEX: KSF). These new funds bring Claymore’s total ETF product lineup to 23 ETFs.

The Claymore/BBD High Income ETF tracks a Benchmarks By Design Index made up of 110 to 150 dividend-paying securities, including U.S. common stocks and American Depositary Receipts (ADRs), real estate investment trusts (REITs), master limited partnerships (MLPs), closed-end funds and traditional preferred stocks. The fund charges 60 basis points (0.60%) in expenses.

LVL will be compared by investors with the huge variety of dividend-focused funds available today, including the category leader, the iShares Dow Jones Select Dividend Index (NYSE: DVY). DVY has gathered $8.6 billion in assets since inception in November 2003 and charges 40 basis points (0.40%) in expenses.

LVL and DVY differ in many ways, starting with their approach to the market: DVY purchases high-yielding equities, while LVL will purchase any type of security - REIT, ADR, MLP, etc - so long as it pays a dividend.

Curiously, the core data on the two funds are a mix: LVL has a lower price/book (P/B) ratio (2.18 vs. 2.68 but a higher P/E (20.3 vs. 15.8).
There are, of coruse, many other dividend/yield-focused funds available.

Claymore, for instance, also markets the Claymore Zacks Yield Hog ETF (AMEX: CVY), which is a value-oriented fund with a P/E ratio of just 11.79 and a P/B ratio of 1.77. CVY takes this value-oriented approach as a way to limit volatility in the fund and even out dividend payments; it sacrifices a small sliver of yield in favor of stability.

WisdomTree also offers a full lineup of dividend-focused funds, including the WisdomTree High Yielding Equity Fund (NYSE: DHS). DHS purchases the highest-yielding stocks in the U.S., charges 0.38% in expenses and has a P/E ratio of 15.93 and a P/B ratio of 2.37.* WisdomTree also offers ETFs that hold substantially all U.S. securities that pay dividends, including the WisdomTree Total Dividend Fund (NYSE: DTD).

Compared to other dividend-focused funds, the WisdomTree family of ETFs - particularly the total market ETFs - takes a more balanced approach to the market, weighting stocks by a measure that effectively incorporates both market capitalization and dividend yield. The result is that the WisdomTree funds more closely approximate the broader equity markets than the yield-at-any-cost funds from Claymore and others.

(*Note: Comparisons are not exact as the WisdomTree numbers are from June 25, while the other numbers are from 5/31/07. Nonetheless, the WisdomTree indexes traded more or less flat for the past three weeks, so numbers are comparable within a margin of error.)

Comments

[Frank Li:]

V helpful -- thanks.

I'd be interested to hear any thoughts on the other dividiend ETFs listed here:
Dividend ETFs

2007 Jul 02 05:06 PM