ETF Trends
ETF Trends

Dividend exchange traded funds (ETFs) offer the perk of extra income to shareholders. What would happen if a dividend ETF used a fundamental indexing approach to investing?

ETF provider WisdomTree took this approach when it began offering its ETFs based on dividend yield a little over a year ago. There are currently 38 WisdomTree ETF offerings, including WisdomTree Dividend Top 100 (DTN). DTN is made up of the 100 highest-yielding of the 300 largest companies by market capitalization in WisdomTree’s LargeCap Dividend Index, according to Tim Hanson for The Motley Fool. DTN weighs its holdings by yield instead of market capitalization. This combination of dividend ETFs with a fundamental indexing approach was created by Jeremy Siegel.

Buyer beware though: This fund has a large holding in Bank of America (BAC) that might be feeling the effects from the credit crisis. The stock might appear to have a high yield only because investors are wary, and the price has dropped. DTN is currently down 1.3% year-to-date and is below its long-term trend line.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.