After Federal Reserve Chair Janet Yellen hinted in late March that interest rates could rise sooner than previously expected, some investors are understandably skittish about exactly when rates will rise and the subsequent impact on their portfolios.
There are diverging clues from financial markets. For example, 10-year Treasury yields are higher by 3.8% over the past five days, but the Utilities Select Sector SPDR (NYSEArca: XLU) is higher by 1.5% over the same time. XLU, the largest ETF devoted to one of the most rate-sensitive sectors, is the best of the nine sector SPDR ETFs this year. [Utilities ETFs Lead the Way]
Then again, investors pulled $10.3 billion from Treasury ETFs last month, in what some observers say is a sign market participants are anticipating higher rates. [Treasury ETF Flows Say Higher Rates are Near]
Should Yellen pleasantly surprise investors by reversing course, the First Trust Morningstar Dividend Leaders Index Fund (NYSEArca: FDL) is a dividend ETF idea with merit for conservative income investors.
“FDL is also a contrarian play. The higher-yielding stocks, despite being large, have been unloved by the institutions and investing public over the last year. They recently have started to make a nice move upward with increasing volume, which tells us that more money is being moved into those stocks,” said Ronald Lang of Atlas Wealth Management in an interview with Trang Ho of Investor’s Business Daily.
Professional investors may once again be compelled to boost holdings of the familiar blue chips that dot FDL’s lineup, including Dow components AT&T (NYSE: T), Chevron (NYSE: CVX) and Merck (NYSE: MRK). Still, FVD could be helped or hindered by investors’ interest rate expectations.