Identifying reasons for FDL’s above-average dividend yield is not difficult. The ETF features significant exposure to several high-yielding sectors. For example, the consumer staples, telecom and utilities sectors combine for about half of the ETF’s weight and are three of the fund’s four largest sector weights. Technology is the other. FDL’s overall cyclical exposure is lower than rival dividend ETFs that are not heavily allocated to telecom and utilities stocks.
No sector is as negatively correlated to rising interest rates as utilities, meaning the longer the Fed resists raising interest rates, the longer high-yielding utilities stocks and ETFs remain compelling destinations for yield-starved investors.
Most investors view utilities as a reliable, income-generating asset that exhibit some bond-like characteristics. As interest rates declined, the sector appealed to many income investors for its relatively higher yields.
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