Years of record-low interest rates have fueled investors’ desire for added investment income. The roughly $20 billion that has flowed into dividend exchange traded funds just this year proves as much.
One lesson from dividend/yield-chasing craze is that not all income ETFs are created equal. Another lesson is, and it applies to every corner of the investing universe, capital preservation is a critical though overlooked component of a portfolio’s long-term success. One ETF that marries the concepts of capital preservation and income generation is the newly minted WBI Large Cap Tactical Yield Shares (NYSEArca: WBIG).
The actively managed WBI Large Cap Tactical Yield Shares debuted in August as part of the 10-ETF suite launched by New Jersey-based WBI Investments. With nearly $116 million in assets under management, WBIG is one of the most successful ETFs in asset-gathering terms to debut this year. [A Strong Year for New ETFs]
A deeper look at WBIG reveals why the ETF has been a quick success.
“Clients want income and we look to reduce the volatility to markets in general,” said WBI President Matt Schreiber in an interview with ETF Trends. “Our ETFs are true active ETFs. We’re not managing to a benchmark. We look to capture some bull market returns while preserving capital during bear markets.”
The capital preservation strategy has worked well as WBIG and its nine stablemates have all outperformed the S&P 500 since coming to market. In fact, the recent market pullback proved to be a fertile testing ground for WBIG’s, which includes moving to cash in tumultuous times and, as Schreiber highlighted, the ability to add new equity positions as markets exit corrections and begin moving higher.
In addition to devoting nearly two-thirds of its weight to short-term U.S. Treasuries and cash equivalents, WBIG holds 11 stocks. Several of those are sturdy dividend payers, new additions to the ETF’s portfolio or both.
“The first thing we want is dividend consistency,” said Schreiber. “We don’t like to see dividend cuts. We do like to see dividend growth. We like to have current income to augment capital appreciation. As long as you have capital, you’re always in good shape.”
Several of WBIG’s top equity holdings have, in recent years, displayed impressive dividend growth. Waste Management (NYSE: WM), WBIG’s largest equity position at 4.4% of the fund’s weight, has boosted its dividend by more than a third over the past five years. [Dividend Growth With ETFs]
Hershey’s (NYSE: HSY) payout has nearly doubled over that period. Qualcomm’s (NasdaqGS: QCOM) dividend has nearly doubled in just the past two years. Yum’s (NYSE: YUM) dividend has more than doubled over the past five years. Those three stocks combined for over 12% of WBIG’s weight at the start of trading on Oct. 28.
There are big differences between WBIG and the usual dividend ETF, namely WBIG’s potential advantages in overtly weak markets.
“The big difference between a passive dividend ETF and us, is the traditional dividend ETF exposes you to market declines and you could lose a lot of capital,” said Schreiber. “With WBIG, you could lose a little of the upside, but we’ll preserve capital.
WBI Large Cap Tactical Yield Shares Top Holdings
Table Courtesy: WBI Investments