Just a short while after dividend exchange traded funds hauled in over $29 billion in 2013, making the genre the biggest contributor to the growth of smart beta ETFs, some of the largest U.S. dividend funds have been bleeding assets in 2014.
Year-to-date, the three largest U.S. dividend ETFs have lost $848.5 million in assets combined. That group is comprised of the Vanguard Dividend Appreciation ETF (NYSEArca: VIG), the SPDR S&P Dividend ETF (NYSEArca: SDY) and the iShares Select Dividend ETF (NYSEArca: DVY). Perhaps surprisingly, VIG is the worst offender in that trio having lost $462.5 million. [Vanguard Dominates ETFs Inflows]
One dividend ETF that has seen inflows, albeit a modest $23.5 million, is a fund that some income investors are already familiar with as evidenced by its $1.8 billion in assets under management. That being the WisdomTree LargeCap Dividend Fund (NYSEArca: DLN).
Given its flirtation with $2 billion in AUM, it is inaccurate to call DLN “obscure” or even “overlooked.” It is, however, worth revisiting this ETF’s advantages compared to rival funds. For example, DLN is up 3.1% this year compared to 1.3% for VIG while being 80 basis points less volatile than VIG, the largest U.S. dividend ETF, according to ETF Replay data.
Although not jaw-dropping, DLN sports a distribution yield of 2.3%. VIG’s trailing 12-month yield is more inline with that of the S&P 500 at 1.9%. DLN differs from funds such as SDY, VIG and others in that its components are not weighed by length of dividend increase streaks. Rather, the WisdomTree LargeCap Dividend Index (WTLDI) “is dividend weighted annually to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year, based on the most recently declared dividend per share,” according to WisdomTree.
That allows DLN to blend sectors that are shaping up to be new sources of dividend growth along those sectors that have already shown themselves to be home to plenty of consistent dividend raisers. For example, technology and financial services, two of the three leading sources of S&P 500 dividend growth over the past several years, combine for over 29% of DLN’s weight. [Tech ETFs Become Dividend Destinations]
Due to rampant dividend cutting by banks during the financial crisis, many bank stocks do not have long enough dividend increase streaks to qualify for admission into ETFs like SDY and VIG. And because the concept of dividend growth is relatively new in the tech sector, that group is also lightly represented in many payout ETFs. SDY has just a 4% weight to tech. As of the end of February, VIG’s combined tech and financial services weight was just 11.5%, according to Vanguard data.
Still, DLN offers comfort for the income investor looking for the dependable dividend growth of sectors such as staples, health care and energy. Those groups combine for nearly 37% of the ETF’s weight and eight Dow stocks are found among DLN’s top-10 holdings.