Markman: Blame Obama for DVY Plunge

Jul.17.08 | About: iShares Select (DVY)

Jon Markman, sometime denizen of such highly reputable sources of investment counsel as Phillips Investment Resources LLC’s Investor Place, The Money Show, and TheStreet.com, delivers today’s entry for the Annals of Dubious Causality® from his MSN Money SuperModels pulpit: 

For one measure of investors’ fear that their hard-won battle for better tax treatment of stock dividends is in danger of being overturned, look at the behavior of the iShares [Dow Jones] Select Dividend Index Fund (NYSEARCA:DVY), an exchange-traded fund that tracks the performance of the stocks that pay the highest dividend yields. It’s down 24% this year — almost twice the 13% decline of the broad market. The steepest part of that decline came after June 1, when it became clear that Obama had bested New York Sen. Hillary Clinton for the Democratic nomination.

Well, maybe. But a less spittle-flecked, and more logical, reason for DVY’s grande vomi is that, like many dividend-weighted ETFs, it is stuffed with financial stocks, the vast majority of which have plummeted for a variety of well-documented reasons including, not incidentally, savage cuts to and/or the elimination of their...dividends.

So far this year, Dow Jones has thrown out eight of the 101 stocks in DVY’s underlying index, including six financials and closeted financial GM. The iShares Dow Jones Financial Sector Index ETF (NYSEARCA:IYF) had dropped more than 30 percent this year through Friday, Jul. 11, from $94.14 to $63.74. That loss was only slightly mitigated by a 51 cent dividend paid Jun. 25, compared with total dividends of $1.237 last year.

According to the most recent iShares DVY fact sheet, financials accounted for 47.9 percent of the ETF on Mar. 31 2008; by Jul. 14 that had slipped to under 40 percent, according to the iShares website. The next two largest sectors, utilities and consumer goods, together accounted for just under 35 percent.

Do the math, and more than half of DVY’s “24% decline — almost twice the 13% decline of the broad market” is entirely due to the financials’ decay which, excepting so far short-lived short-killing rallies, has only intensified since Jun. 1, for reasons entirely unrelated to the end of the Clinton-Obama wars.

While Markman’s thesis makes a talking point beloved of Republican foot soldiers, federal election records show that Markman’s only political contributions — both of them —  have been to Democrats, with the biggest and most recent being $1000 to John Kerry’s 2004 presidential run. So the good news is that his interest in money trumps his political leanings; the bad news is that the one-time award-winning investigative journalist chose not to let the facts get in the way of a good story.

Disclosure: NakedShorts, in far off days, once subscribed to one of Markman’s tipsheets. That relationship ended when a recommended stock broke below the suggested stop but, miraculously, as it bounced, remained in the Markman portfolio. An email exchange followed during which a “clerical error” or some similar dog-ate-my-homework-check’s-in-the-mail-trust-me perfectly valid reason was exposed; the “error” was subsequently corrected. I did not renew my subscription. Fist bumps all round.

Why Wall Street fears Obama
by Jon Markman
SuperModels (MSN Money) Jul. 14 2008

DVY_20080714

Graphic stolen from, and annotated by, Dave Fry at ETF Digest; he published it Monday, Jul. 14. Technical analysis aficionados will notice the death cross — the downsloping 50-day DMA crossing the 200-day DMA. Despite Wednesday’s 5.6 percent rampage, almost half of which went up in smoke between 4:00 pm and 4:15 pm, the ETF is still down for the week.

iShares Dow Jones Select Dividend Index Fund fact sheet
Mar. 31 2008

iShares Dow Jones Select Dividend Index Fund Overview

Changes to DJ US Select Dividend Index:

Effective Jul.18: Delete GM; Add ZION

Effective Jun. 4: Delete CGI; Add FTBK

Effective May 8: Delete TSFG; Add WBS

Effective May 6: Delete CRBC; Add FMBI

Effective Apr. 24: Delete NCC, Add UBSI

Effective Apr. 11: Delete WM, Add FCBP

Effective Apr 7: Delete LZB, PFF; Add MCY, MI