Income-Producing ETFs Dominate 'New Highs' List

by: Gary Gordon

Window-dressing money managers need to show that they are “long” the energy sector in their quarterly reports. Not surprisingly, there are scores of energy services ETFs and energy exploration ETFs on the “New Highs” List. You’ll find:

1. Oil Services HOLDRs (NYSEARCA:OIH)
2. iShares DJ Oil Equipment & Services (NYSEARCA:IEZ)
3. PowerShares Dynamic Oil Services (NYSEARCA:PXJ)
4. SPDR S&P Oil &Gas Equip/Services (NYSEARCA:XES)
5. iShares DJ Energy (NYSEARCA:IYE)
6. SPDR S&P Select Energy (NYSEARCA:XLE)
7. Vanguard Energy (NYSEARCA:VDE)

even ...

8. Global X China Energy (NYSEARCA:CHIE)

and ...

9. PowerShares S&P Small Cap Energy (NASDAQ:PSCE)

In contrast, there are asset managers who have been overweight non-OPEC nations and oil services since Q4, 2010. (Review my January 4, 2011, column: "Economics of Oil Favor Canada ETFs and Oil Services ETFs.")

Of course, the “energy trade” may become overcrowded at some point. Investors need to think about alternative means for generating a combination of capital appreciation and income for their portfolios. Indeed, they should consider using pullbacks to do what money managers have been doing ... snapping up shares of equity income ETFs, preferred ETFs and dividend ETFs.

Data show that many of these exchange-traded investment types have experienced increased inflow in recent weeks. What’s more, outside of the energy world, income-producing ETFs dominate the “New Highs” List. In the dividend arena, you’ll find:

1. Claymore Guggenheim S&P Global Dividend (NYSEARCA:LVL)
2. S&P International Dividend (NYSEARCA:DWX)
3. WisdomTree Global Equity Income (NYSEARCA:DEW)
4. First Trust Morningstar Dividend (NYSEARCA:FDL)
5. iShares DJ Dividend (NYSEARCA:DVY)

Last week, I expressed a bit of wonder with respect to interest in S&P International Dividend (DWX). The fund has significant exposure to developed world financial services companies at a time when Spanish banks are receiving downgrades and default woes are plaguing Portugal sovereign debt.

By the same token, investors may be looking to dividend ETFs to lessen portfolio volatility, increase quarterly cash flow and minimize stock uncertainty. Considering the number of these ETFs appearing on the ”New Highs” List - FDL, DVY, DEW - the trend toward modest risk seems clear. After all, most of the broader benchmarks are still 2%-3% away from new highs.

And there are those who are willing to journey part of the way up the risk ladder. They’ll take on more risk than bonds for a higher income stream, but they’ll avoid too much exposure to uncertainty in common stock.

Enter preferred ETFs. PowerShares Financials Preferred (NYSEARCA:PGX), PowerShares Preferred (NYSEARCA:PGF) and iShares S&P Preferred (NYSEARCA:PFF) all made an appearance on the “New Highs” List. Each delivers monthly income at approximately 7% annualized, and each has a modicum of potential for incremental capital appreciation.

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.