In June, Fed officials began reassuring investors that interest rates would stay low for several years and income-generating stock ETFs recovered in dramatic fashion. Indeed, SPDR S&P Dividend (SDY) which tracks the S&P High Yield Dividend Aristocrats Index is back at a record peak.
Here’s a breakdown of performance across a number of yield-oriented stock ETFs since the June 24 low:
| Has The Hunt For Yield Returned? | ||||||
| Approx % Gain (6/24-7/29) | ||||||
| iShares DJ US Telecom (IYZ) | 14.6% | |||||
| PowerShares High Yield Equity Dividend Achievers (PEY) | 8.3% | |||||
| SPDR Select Sector Utilities (XLU) | 8.2% | |||||
| SPDR S&P Dividend (SDY) | 7.6% | |||||
| SPDR DJ REIT (RWR) | 7.6% | |||||
| SPDR S&P 500 Trust (SPY) | 7.3% | |||||
| PowerShares KBW Hi Dividend Yield Financial (KBWD) | 6.8% | |||||
| UBS E-TRACS Alearian MLP (MLPI) | 6.6% | |||||
One additional way to look at the “second chance” that high-yielding equity is receiving is through a price ratio. For example, the PEY:SPY price ratio soared in the first 4 months of the year, demonstrating the enormous hunger for yield-oriented assets like PowerShares High Yield Equity Dividend Achievers (PEY). In May, the PEY:SPY price ratio tanked. However, there has been a steady build-up of momentum as investors began taking an additional look at stock ETFs with above-average yields.
The current Administration desperately needs consumer lending rates to stay low (and perhaps move lower). Since jobs data and GDP growth are exceptionally unlikely to warrant changing the course of monetary policy prior to the selection of the next Fed chairman, and due to the fact that fiscal policy is likely to remain neutral or tight, it is reasonable to give some rate-sensitive assets another shot. I favor UBS E-TRACS Alerian MLP (MLPI) as well as SPDR Dow Jones REIT (RWR).
Gary Gordon is president of Pacific Park Financial, Inc.