Welcome to the ninth edition of my monthly dividend and income ETF report, where I aim to highlight the latest results and fundamentals for nearly 100 ETFs stretching across seven unique categories. For this month, to save you time, I'd like everyone to download this source file which summarizes most of the key metrics you've become familiar with. This file will allow you to quickly filter for the ETF features that matter most to you, like dividend yield, dividend growth, fees, turnover, and historical returns. For some readers, this may be all you need. But if you're looking to gain more insight into how the dividend and income ETF universe is shaping up and where I think the best value is today, I hope you'll continue reading.
ETF Results By Category: A Macro-Level View
Though most readers are dividend investors, it's helpful to know what's happening elsewhere in the market. As an ETF analyst, I want to open as many doors as possible, so I study the fundamentals of 800+ ETFs to discover the best value. Undoubtedly, it's been dividend and value ETFs this year, but that won't last forever. One of the simplest ways to detect a change is by analyzing median returns for the entire ETF universe. Check out the table below for this macro-level view of the market.
Energy prices continue to make headlines, with the category returning a median 15.54% gain in May. Utilities are doing well despite higher rates, which I thought was likely in this bullish piece from March. Small-cap value ETFs also had a good month, and they still have lots of potential since most hold a lot of volatile regional banks that should do well if the yield curve steepens. Keep this macro-level view in mind when assessing the performance of your portfolio this month. Did you do well because you happen to hold a lot of Energy and Utilities stocks? If so, are you willing to take some profits and invest in ETFs that have high exposures to some of the worst-performing sectors like Consumer Discretionary and Real Estate?
Also, I'm watching the Technology sector closely, as that's one sector that does a pretty good job reflecting investor sentiment. Notice how it didn't do too badly in May, losing a median 1.20%. I wrote why I'm becoming more optimistic in my latest review of the Invesco QQQ ETF (QQQ). Also, I feel pretty good about jumping back into semiconductor stocks now. The Invesco PHLX Semiconductor ETF (SOXQ) is the cheapest way if you go the fund route, but there are also five other ETFs I compared it with in this article.
Top Performers: May 2022
The table below highlights the four best-performing ETFs in May from each category, as follows:
- Total Market and Large-Cap Dividend ETFs
- Mid and Small-Cap Dividend ETFs
- High-Yield Dividend ETFs
- Income Generation ETFs
- Risk Management ETFs
High-yield dividend ETFs were generally the best performers. Funds like the First Trust Morningstar Dividend Leaders ETF (FDL) and the WisdomTree U.S. Dividend Fund (DHS) continued to perform well. Also, although not in the table above, the Global Beta Smart Income ETF (GBDV) pulled out a 5.14% gain in May and is still the best-performing dividend ETF over the last three months. You can check out my review of this underfollowed ETF here, and you can find my latest updates on FDL and DHS here and here.
These results show that bigger isn't always better since most have relatively low assets under management. Low assets don't bother me since nearly all ETFs trade close to their NAVs due to the ETF structure. Liquidity is rarely an issue thanks to market makers who efficiently create and remove units from the market (unlike CEFs). As long as the fund isn't at risk of shutting down, there's no reason these ETFs can't outperform the more popular products you likely own. It would be best to focus your attention on what strategy an ETF executes and the fundamentals of its current portfolio since that's what you're looking to buy.
That's Great, But What About The ETFs I Own?
You may be wondering what's going on with the most popular funds. The table below includes the performances of such ETFs you're likely more familiar with, and it's clear that high-yield ETFs were still the place to go in May. I was pleased to see the Schwab U.S. Dividend Equity ETF (SCHD) perform well, as did the iShares Select Dividend ETF (DVY) and the iShares Core High Dividend ETF (HDV). These are all ETFs I've recommended previously, but for different reasons. SCHD is probably the best long-term choice for dividend growth investors, while HDV and DVY are excellent short-term plays. You can read my latest reviews on HDV and DVY here and here. I still haven't gotten around to providing an update on SCHD, as I've already covered it numerous times. But I plan to, and here's hoping June is the month it happens.
In contrast, I cautioned investors about the deteriorating dividend growth features offered by the Vanguard Dividend Appreciation ETF (VIG). I initially downgraded VIG in November but gave a slightly rosier review early last month. I've also never been excited about the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), but I see opportunities for ETFs like DGRW and DGRO. These will likely benefit if my market assessment is correct, and we get a rebound with riskier assets. Include the First Trust Rising Dividend Achievers ETF (RDVY), too. RDVY is heavily concentrated in Technology, but I've been monitoring its changing fundamentals almost daily, and as of May 16, I'm bullish again.
Buy And Sell List For June
In my view, high-dividend ETFs are still your best bet for June, plus one total market fund that's most appropriate for aggressive investors.
- Global Beta Smart Income ETF (GBDV)
- iShares Core High Dividend ETF (HDV)
- WisdomTree U.S. High Dividend ETF (DHS)
- First Trust Dorsey Wright Momentum & Dividend ETF (DDIV)
- First Trust Morningstar Dividend Leaders ETF (FDL)
These ETFs have a high allocation to Energy, with FDL's 10% exposure being the lowest. I continue to advocate that investors have at least some sort of inflation protection in their portfolios. Other popular funds like SCHD, VIG, DGRO, and DGRW don't have it. We don't know how successful the Federal Reserve will be at controlling inflation. With crude oil prices approaching $120 per barrel, Energy is your best inflation hedge on the equities side. If I'm wrong, then there's still an excellent chance other high-quality stocks in your portfolio will pick up the slack.
In contrast, the following five ETFs score poorly on my end, and I think you should avoid them for now:
- O'Shares FTSE Russell Small Cap Quality Dividend ETF (OUSM)
- ProShares Russell 2000 Dividend Growers ETF (SMDV)
- First Trust Small Cap U.S. Equity Select ETF (RNSC)
- Global X Super Dividend U.S. ETF (DIV)
- Invesco S&P SmallCap High Dividend Low Volatility ETF (XSHD)
I've summarized each ETF's fundamentals in the table below, which I hope explains my reasoning. As you can guess, I value a combination of value, growth, profitability, and volatility. The first five meet many of these criteria, while the last five don't.
These metrics were calculated based on each ETF's current constituents, so they'll likely differ from what you find on third-party websites. I've done this intentionally to keep the focus on what the ETF currently holds. For example, DHS has a 4.46% five-year dividend growth rate, but its current constituents have an 8.61% growth rate. In my view, the latter is more important.
Thank you for taking the time to go through the latest data with me, and I hope you could get through it much quicker than usual. As you analyze the source file, please consider the factors I believe matter most: fees, beta, dividend yield, dividend growth, revenue and earnings growth, valuation, and profitability. Also, remember that ETFs are mini portfolios on their own. They change with each scheduled reconstitution, and often drastically, so try to keep your focus on how each portfolio looks today rather than how the strategy performed historically. Use the turnover metric to gauge the ETF's activity level, and if you have any questions, I'll do my best to answer them in the comments section below.
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