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Tom Aspray, professional trader and analyst was originally trained as a biochemist but began using his computer expertise to analyze the financial markets in the early 1980s. Mr. Aspray has written widely on technical analysis and has given over 60 presentations around the world. Many of the... More
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  • Income ETFs With Strongest Charts 0 comments
    Jul 17, 2012 11:23 AM | about stocks: PFF, HDV, VYM, SPY

    Tired of the very low yields in the Treasury markets? MoneyShow's Tom Aspray suggests you take a look at these three income ETFs that can give you well-diversified exposure to some of the top dividend-paying stocks.

    The yield on the ten-year Treasury Note closed Monday at a new low yield of 1.464%, which was just slightly below the June 1 low of 1.467%. This is a sign that many investors are still clearly nervous, opting for safety even if it means a negative total return.

    Still, the stock market has held up surprisingly well. The last time yields were this low, the Spyder Trust (SPY) closed at $128.16, 5.4% below Monday's close.

    For those who do not have the resources or time to invest in individual stocks, the high-yield ETFs are an attractive alternative. All have low expense ratios and contain many of the stocks that I like individually on a technical basis. Several of these ETFs have very good-looking charts, and their relative performance suggests they are acting stronger then the S&P 500.

    chart
    Click to Enlarge

    Chart Analysis: The iShares High Dividend Equity Fund (HDV) has a current yield of 2.93% with an expense ratio of 0.4%. HDV tracks the Morningstar Dividend Yield Focus Index, which follows companies that have a consistent pattern of high dividends. So far in 2012, DHV has returned over 8%, assuming the reinvestment of dividends.

    • HDV has a high weighting in Health Care (29%) and Consumer Goods (24%), with 10% in AT&T (T), which is the largest holding. HDV has 7% in both Johnson & Johnson (JNJ) and Pfizer (PFE).
    • The weekly chart shows a well-established trading channel (lines a and b), with the upper boundaries currently at $62 or above current levels.
    • The RS analysis formed higher lows in March (line c) before moving back above its WMA.
    • The RS line has turned up and made new highs last week.
    • Volume spiked in mid-June, dropping the on-balance volume (OBV) below its WMA, but it did confirm the recent highs.
    • There is initial support now at $59.60, with stronger levels in the $58 to $58.50 area.

    The Vanguard Dividend Yield ETF (VYM) has a current yield of 2.87% with a very low expense ratio of 0.13%. It concentrates on stocks with higher than average dividends, and so far in 2012 is up about 6.4%.

    • Consumer Staples is the largest sector, weighing at over 19%, followed by Industrials (13.7%), Energy (12.9%), and Health Care (12.1%)
    • Exxon Mobil (XOM) at just over 6% is the largest holding, followed by Microsoft (MSFT) at 4.2%, Chevron (CVX) at 3.4%, and General Electric (GE) at 3.3%.
    • The weekly chart shows a more than four-month trading range (lines e and f).
    • On a close above $49, the initial upside targets are $50 to $50.50, and then $53.
    • The RS analysis turned positive in early May, moving above its WMA.
    • The weekly OBV has turned up from its long-term uptrend (line h), after breaking its short-term downtrend (dashed line) in early July.
    • There is first support now at $47 to $47.40, and then in the $46.50 area.

      chart
      Click to Enlarge

      The iShares S&P US Preferred Index (PFF) has a current yield of 5.89%, and is the largest ETF in the preferred stock space. It has an expense ratio of 0.48% and is made up over 200 financial sector securities. It is up over 10% so far in 2012

      • There is only 16% concentrated in the top ten holdings, including securities of General Motors (GM), HSBC (HBC), Wells Fasrgo (WFC), and Citigroup (C).
      • PFF had a low of $37.23, and is now up 5.3% from its lows.
      • The weekly downtrend (line a) is in the $39.70 area, with prior highs at $40.15 and then $40.43.
      • The relative performance broke its multi-year downtrend (line b) in May,
      • Â and a move above the prior high will confirm that it has bottomed.
      • The weekly OBV broke out to the upside three weeks ago, overcoming resistance (line c).
      • The OBV shows a long-term uptrend (line d).

      The daily chart shows that PFF has popped to the upside over the past two days, with first good support just below $39 (line e) and the rising 20-day EMA.

      • There is stronger support in the $38.50 to $38.75 area, and then at $38 to $37.74.
      • The daily RS line has moved back above its WMA, but is still in a short-term trading range. It has a long-term uptrend (line g).
      • A move in the RS above resistance (line f) will be a bullish sign.
      • The daily OBV looks very strong, as it surged through resistance (line h) in June.
      • Volume over the past few days has been strong, so look for a low-volume pullback.

      What it Means: Even though these ETFs have done well this year, they are still an attractive alternative to individually accumulating a basket of large-cap, high-dividend stocks.

      As I noted in the Week Ahead column, a higher close in the financial sector this week could confirm it as a market-leading sector. This could make the iShares S&P US Preferred Index (PFF) especially attractive.

      How to Profit: For iShares S&P US Preferred Index (PFF), go 50% long at $38.94 and 50% long at $38.72, with a stop at $37.54 (risk of approx. 3.3%).

      Alternatively, look at one of these based on which sector weighting you prefer:

      For the iShares High Dividend Equity Fund (HDV), go 50% long at $59.52 and 50% long at $58.66, with a stop at $56.94 (risk of approx. 3.6%).

      For the Vanguard Dividend Yield ETF (VYM), go 50% long at $47.74 and 50% long at $47.26, with a stop at $45.78 (risk of approx. 3.6%).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: PFF, HDV, VYM, SPY
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