Although U.S. stocks continue to climb higher, aided in part by some high-flying growth stocks, investors have displayed a preference for more conservative, value-oriented fare over the past several years.
Over the past five years, investors have poured “more than $16 billion to the 10 most popular value-oriented ETFs, versus $10 billion for growth, Barron’s reported in late November. [Investors Glossing Over Growth ETFs]
To go along with that, the Consumer Staples Select Sector SPDR (NYSEArca: XLP), the Utilities Select Sector SPDR (NYSEArca: XLU) and the Health Care Select Sector SPDR (NYSEArca: XLV) have offered stellar returns since 2010. XLV has almost doubled over that time and is now the third-largest U.S. sector ETF. [XLV Moves Into Third Spot in Sector ETF Size]
“Dividend paying ETFs that don’t simply own the whole crop of them or only the highest yielding (typically the riskiest) among them, have been market laggards this year — albeit still generating outsized return relative to historical average returns,” writes Jim Lowell for MarketWatch.
Lowell highlights two ETF ideas for conservative investors heading into next year, including the Vanguard Value ETF (NYSEArca: VTV). VTV is popular with investors not only because of its low fees, just 0.1% per year making it cheaper than 91% of comparable funds, but also because of it can be used as a more focused S&P 500 alternative.
VTV is home to 312 stocks and has slightly outpaced the S&P 500 this year. The ETF is light on technology, telecom and utilities names as those sectors combine for just over 16.2% of the fund’s weight. Financials loom large in VTV with a weight of 22.3%, so investors can pair this fund with Lowell’s other pick, the WisdomTree Dividend ex-Financials Fund (NYSEArca: DTN).
“A dividend ETF that is ex-financials helps offset what can be an overabundance of financials across your portfolio’s board,” writes Lowell.
Although it excludes financial services, a sector that has seen improving dividend growth in recent years, DTN does a good job of mixing cyclical and conservative sectors.
The $1.15 billion ETF allocates about 53% of its combined weight to the technology, utilities, industrial and staples sectors. DTN, which has hit a series of all-time highs this year, also pays a monthly dividend. Its annual fee is 0.38% with a distribution yield of 3%. [All-Time Highs for This Dividend ETF]
WisdomTree Dividend ex-Financials Fund
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of VTV.