High dividend investing is not always a strong strategy, particularly when looking at stocks with dividend yields in the 10-20% range as many of these companies are highly unprofitable and struggling to survive. This is a chronic issue in the Global X SuperDividend ETF (NYSEARCA:SDIV), which I explained in the article "SDIV: Borrowing Money To Pay Dividends Is A Recipe For Disaster" last November. The ETF is down 37% since then and is only up 2% since I wrote "SDIV: The Crash Has Come, Don't Expect A Rebound" in May this year.
Indeed, SDIV is a very interesting ETF. It attracts significant investor attention with AUM of $630 million. However, it has delivered negative total returns since 2012 and has underperformed the all-world Index ETF (ACWI) on a relatively consistent basis. See below:
Importantly, I'm using total returns, which account for dividend returns. As you can see in the lower chart, SDIV's underperformance trend is chronic, and it has never exhibited a period of outperformance that has lasted over around three months. In fact, its underperformance has become even more extreme over the past two years, 2020 in particular.
How Has SDIV Changed Since May?
So, what is the core issue with SDIV? The ETF pays a very strong dividend yield of 9%, so it would seem that its yield should make up for equity dilutions. However, the fund appears to generate negative alpha from its selection bias. The fund's strategy is simple - it purchases the top 100 highest dividend-paying equities in the world subject to liquidity requirements.
This strategy gives the ETF relatively strange exposure. The vast majority of its holdings are in emerging markets, with South Africa and China being significant areas of concentration. As you can see below, an additional 22% of the ETF is currently invested in the U.S:
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