The iShares Currency Hedged MSCI EAFE ETF (HEFA) lagged its unhedged counterpart, the iShares MSCI EAFE ETF (EFA) as the dollar was falling during the first part of 2018, but it’s been a different story since the beginning of April.
Right around the middle of April, the two ETFs diverged as the dollar’s rise accelerated. Over the past week or so, both funds have declined thanks to overall weakness in the eurozone but removing currency risk from the equation and avoiding the negative effects of the rising dollar has paid dividends.
The bottom line here is that if you’re investing overseas and planning on hanging on to the ETF for the long term, it’s probably beneficial to hedge some of that risk out.
The Dividend ETF Idea
Dividends are one of the bigger drivers of shareholders and one of the bigger sources of return over time. Just like dividends create value for shareholders, events, such as stock buybacks and debt reductions, can create additional tangible value. The Cambria Shareholder Yield ETF (SYLD) is actively managed and looks to invest in companies that demonstrate the ability and history of returning free cash flow to their shareholders. SYLD invests in 100 stocks with market caps greater than $200 million that rank among the highest in (a) paying cash dividends, (b) engaging in net share repurchases, and (c) paying down debt on their balance sheets.
While the fund’s trailing 12-month dividend yield of 1.4% won’t blow anyone away, it’s not a measure of all the ways that companies return cash to shareholders. Dividends are reflected in the yield, while buybacks and debt reductions show up in the share price. According to a past interview with Cambria’s Meb Faber, he estimates that accounting for all three sources of capital return puts the fund’s overall shareholder yield in the 7-9% range.
The strategy has proven sound. SYLD falls into Morningstar’s Mid-Cap Value category, and over the past five years, the fund has managed to beat its peer group average by about 2.5% annually. Ultimately, an investor’s goal should be to target investments that return capital to their shareholders. Most funds do this by targeting dividend payers specifically. A few, such as the SPDR S&P 500 Buyback ETF (SPYB), target companies that have made large share repurchases in the recent past. SYLD is smart in that it targets both. I like this fund as a “non-traditional” option for income seekers.
The Brand New ETF Idea
Pacer is best known in the ETF world for its Trendpilot suite and its cash flow-focused ETFs. This week, it’s expanding its lineup to create a group of real estate ETFs focused on very specific niches of the economy. Pacer has launched three ETFs over the past week and looks poised to debut a handful of others in the near future.
The Pacer Benchmark Industrial Real Estate SCTR ETF (INDS) seeks to track an index that provides exposure to industrial REITs that are part of the e-commerce distribution and logistics networks along with self-storage facilities. This fund will invest in things, such as warehouses, distribution centers, and similar facilities that enable e-commerce businesses to ship goods to their customers. The Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR) will target data and infrastructure REITs, such as cell towers and data processing centers, while the Pacer Benchmark Retail Real Estate SCTR ETF (RTL) will focus on the traditional brick-and-mortar retail space, including shopping centers and malls.
I like what Pacer is doing to build out their ETF lineup. The focus on very specific market niches is somewhat unique and could provide a nice option for investors looking to be more targeted with their real estate investments. These will need a little time to grow their asset bases and become a little more operationally efficient, but I believe real estate investors should keep an eye on these.