On this episode of the “ETF of the Week” podcast, Tom Lydon discussed the Global X SuperDividend ETF (SDIV) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
SDIV ETF
Chuck Jaffe: One fund on point for today. The experts are talking about it. Welcome to the ETF of the Week podcast, where we get the latest take from Tom Lydon, the vice chairman of VettaFi. VettaFi.com has a suite of tools that are going to help you become a savvier, smarter, better-prepared investor in exchange traded funds. Check it out at VettaFi.com. Tom Lydon, it’s great to chat with you again.
Tom Lydon: Great to be back. Thanks, Chuck.
Chuck Jaffe: Your ETF of the week is?
Tom Lydon: It is the Global X SuperDividend ETF (SDIV).
Chuck Jaffe: Global X SuperDividend ETF, SDIV. Why dividends right now?
Tom Lydon: Well, as you know, this year it’s been all about yield. It’s been all about the Fed, it’s been about the messaging, it’s been about interest rates, Chuck. But many feel today that the Fed is done, or very, very close to being done hiking rates. So what does that mean for your fixed income portfolio? It’s really nice to get paid being in money market funds about 5%.
But if we actually do have a recession or weakness in the economy at all, the Fed will come in and start chopping. That’s good for the economy. Not bad if you’re an income investor. So like in the past few weeks, Chuck, we’ve been talking alternative income strategies. This is one of those strategies that it’s very unique. What it does is invest in 100 of the highest-dividend-paying equities from around the world.
When you think about some of the yields that have been kicking off here, the distribution yield for the last 12 months, Chuck, is 12.85%. Last 30-day yield, 11.27%. So if we’re going to be in a world where rates will be lower a year from now, here’s a way where lower interest rates really help move global economies, which would be better for the companies that are in this ETF.
At the same time, you’re getting those high yields in a diversified way. Not bad to consider this if you’re a fixed income investor.
Chuck Jaffe: Let’s talk just a little bit about that strategy. If you’re looking at those high yields, some folks would say companies pay high yields for bad reasons, right? The Dogs of the Dow is a strategy where they’re called “dogs” for a reason. Do you worry at all that in this higher-rate-for-longer environment, where we’ve seen dividends rising up and what have you, that there’s any trouble baked into this kind of fund that people need to be aware.
You’re getting this great yield, but you’re getting it the same way. Junk bonds give you a higher yield as well. So is there any concern there because you’re fishing at that end of the dividend pool?
Tom Lydon: Well, absolutely, Chuck. You have to look under the hood and this is a diversified ETF, with about 27% in financials. Guess what? Higher rates have actually done really well for financials. And with the recent messaging from the Fed, you can see areas even like regional banks have had an unbelievable past couple of weeks. So that’s not bad.
The second sector is energy. Energy prices continue to be high, and the market is sustained during that period. Consumers are doing well. They’re able to continue to pay higher energy prices. The third sector is materials. Materials prices continue to be high because they’re in demand. We’re actually seeing recovery in economies because of not only consumer demand but future rate cuts.
That’s going to do very well for materials, too. So, again, it’s not perfect. And getting back to what this podcast is all about, it’s identifying trends. And as you point out, we are slightly below the 200-day average on this ETF. Use that as your trigger, as your safety valve, to be able to sell it while you’re in. If you get some appreciation and you get that high yield, that’s not a bad deal.
Chuck Jaffe: You answered the 200-day moving average question before I even asked it. But there’s another side to this one that I want to touch on as well. I’m always asking you, where does somebody take the money from to add something like this? It’s a really interesting question with this, because you’re probably buying this fund because you want income, but you’re getting an equity fund.
You’re not getting that much overlap with your plain vanilla growth funds because those own the big-name securities that are not necessarily the highest yields. So you are getting that diversification factor. That being the case, where does the money come from if you’re taking something from someplace else to put into this fund, particularly as it crosses hopefully the 200-day moving average?
Tom Lydon: So a couple of things, Chuck. First, investors in the U.S. are sitting on more cash than they have in 10 years. Most investors, even if you have an advisor, have a bunch of money that’s on the sidelines. Again, you’re getting paid for it, which is great. But the whole idea is, a year from now, if people are right, you’re not going to get paid 5% in a money market fund or you’re not going to have that much money in a CD.
How do you move it into a diversified way? And you bring up the right point: not just going for yield, but also putting that back into the market? We’ve had some pretty good corrections in the last couple of years. Here are some areas where you may be able to buy in at lower prices as they go above their trend line. At the same time, get paid waiting for these markets to recover.
Chuck Jaffe: This fund has been around for a while. I’m curious if we see rates start to fall next year and we get back not necessarily to the low rate environment that we had for years, but to something that more resembles what’s been the norm over the years. Is this fund still something you would want to be holding? I get that it could be a 200-day moving average play, but did this fund perform and deliver the oversized yields you wanted at a time when fixed income was delivering nothing?
Tom Lydon: Well, it was really tough to not win during that period. If you’ve got a high-dividend ETF — and again, why are you investing in it? You’re bringing up the right points, Chuck. It’s diversification from an equity standpoint away from your core, highly correlated S&P 500 allocation and also getting paid a decent yield for a period of time when we had rates that were very low or next to nothing.
So it’s kind of the best of both worlds, but you have to keep an eye on the trend. You have to keep an eye on the moving average. And if you’ve got some money on the sidelines, not a bad idea to push a little into this, but watch it really closely.
Chuck Jaffe: It’s the Global X SuperDividend ETF, SDIV! The ETF of the Week from Tom Lydon at VettaFi. Tom, great stuff as always. See you again next week.
Tom Lydon: Thanks, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production between VettaFi and Money Life with Chuck Jaffe. Yup, that’s me. And if you want to learn about my hour-long weekly podcast, go to moneylifeshow.com or wherever you find your favorite podcast. But if you want to learn more about exchange raded funds, make sure you go to VettaFi.com, where their suite of tools will help you become a better, more informed, well-rounded investor. Check them out at Twitter or X @Vetta_Fi. @TomLydon my guest is on Twitter, as well. The ETF of the Week is here for you every Thursday. We will see you again next week. Until then, happy investing, everybody.
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