On the back of a 21.5% tumble by 10-year Treasury yields, the normally boring utilities sector has been hot. So much so that the Utilities Select Sector SPDR (NYSEArca: XLU) trails only the Health Care Select Sector SPDR (NYSEArca: XLV) as the best of the nine sector SPDR ETFs.
XLU, has not, however, moved up in a straight line. The usually low beta ETF tumbled nearly 6% in July, providing investors little shelter from a rocky month for U.S. stocks. August brought better things for utilities stocks as XLU lived up to its reputation for being that month’s second-best performing SPDR ETF with a 4.5% gain. [Conservative ETF Ideas for August]
The utilities sector rebound is benefiting some dividend ETFs that employ yield as part of their weighting methodology, including the First Trust Value Line Dividend Index Fund (NYSEArca: FVD). Buoyed by the utilities bounce, FVD raced to an all-time high last Friday, capping an August run of 4.3%.
That says a 25.4% weight to the utilities sector, more than 1,000 basis points higher than the ETF’s second-largest sector weight, is helping FVD achieve new highs. [Utilities Rally Helps Some Dividend ETFs]
Having debuted in August 2003, FVD is one of the oldest U.S. dividend ETFs. FVD’s 182 holdings are pulled from a universe of stocks that have rankings of 1 or 2 in the Value Line Safety Ranking System. From there, Value Line “selects those companies with a higher than average dividend yield, as compared to the indicated dividend yield of the Standard & Poor’s 500 Composite Stock Price Index,” according to First Trust.
Although FVD’s combined weight to the richly valued utilities and consumer staples sectors is nearly 40%, the ETF does offer ample exposure to value sectors by way of an almost 15% weight to financial services names. Adding to FVD’s value credentials is a combined 21% weight to the technology, consumer discretionary and energy sectors.
While FVD is home to 17 Dow components and mostly U.S. stocks, the ETF’s international exposure should be overlooked as a dividend advantage.
FVD’s non-U.S. holdings include several Canadian banks, which have proven to be steadier dividend payers than their U.S. counterparts. The ETF also sports some exposure to European oil majors, such as Royal Dutch Shell (NYSE: RDS-A) and Total e (NYSE: TOT). Those stocks sport higher dividend yields and more attractive valuations than their U.S. equivalents. [Global Energy ETFs Look Like Bargains]
The rub with FVD is a 0.7% annual expense ratio, making it one of the pricier options in the U.S. dividend ETF arena. That has not stopped FVD from becoming a $920.4 million ETF and nearly $61 million of those assets have come into the fund this year.
First Trust Value Line Dividend Index Fund
