November 23, 2007 at 12:00 pm by Tom Lydon
Woof! An exchange traded note (ETN) that tracks the Dogs of the Dow is finally here to take advantage of the Dogs’ "market-beating" strategy. In case you didn’t know, the Dogs of the Dow owns the 10 highest-yielding listings on the Dow Jones industrial average. It holds them at 10% each and rebalances onces a year.
Roger Nusbaum, writing for RealMoney.com, says the Elements Dow Jones High Yield Select 10 Total Return Index ETN (DOD) offers a few advantages to funds that track this index, plus one disadvantage.
First, the good news: as an ETN, it doesn’t actually own any of the stocks. It’s just making a promise that the fund will return the same as if one did own the stocks, plus their dividends. Since you’re not in actuality getting any dividends, there’s no dividend income to tax. And, since no stocks are being sold, you won’t declare capital gains, either.
Nusbaum says the disadvantage is more of a mental hurdle, as many investors like to see actual dividends arrive in their accounts instead of "perceived" dividends. But once that hurdle is cleared, we imagine most investors would be happy with money coming in, regardless of what form it takes.
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