WisdomTree Wins Capital Link’s Top ETF Award

It’s award season again in ETF Land.

Capital Link held its 11th annual Closed-End Funds and Global ETFs Forum yesterday at its traditional home New York’s Metropolitan Club. During the conference Capital Link delivers awards to both the closed-end fund and ETF industries. However, I’m just listing the ETF awards. The awards are based on nominations by a committee of analysts and industry specialists who actively follow the products. Capital Link isn’t part of the nominating committee nor can members of the committee be candidates for the awards.

Capital Link’s award for Most Innovative ETF in 2011 went to the WisdomTree Managed Futures Strategy Fund (WDTI).

iShares won two awards: Best Shareholder Relations for best financial disclosure and proactive shareholder communications and Best Investor Relations ETF Website for most informative and user friendly financial Website.

The Most Innovative Index went to the Russell-Axioma IS Large Cap Low Volatility Index (LVOL).

Jan Van Eck, the president of Market Vectors ETFs, won the award for biggest contribution to the ETF sector in 2011. No explanation of the contribution was given, but audience members suggested it was for killing the Holdrs products.

In the category of awards to ETF analysts, Morgan Stanley Smith Barney won for best research team in both the ETF and closed-end fund industries. The team consists of Michael Jabara, David Perlman and Stephen Minar. Mariana Bush of Wells Fargo Advisors won the award for the analyst who made the biggest contribution to the ETF sector last year. She also tied for contribution to the closed-end fund sector with Jon Maier of Bank of America Securities – Merrill Lynch.

ETF Companies Seek Vanity Plates for Tickers

Rachel Louise Ensign wrote a funny story in the Wall Street Journal on ETF sponsors searching for memorable ticker symbols to help market their funds. Laura Morrison of the New York Stock Exchange says they’re like vanity plates on cars. But with 1,350 symbols already in use on the NYSE Arca, the biggest exchange for ETFs, and another 2,446 reserved for future products, it’s getting hard to find something catchy.

Ensign likes the literal, such as SOIL, the ticker for the Global X Fertilizers/Potash ETF, the figurative, such as DUST for the Direxion Daily Gold Miners Bear 3X Shares and the alluring, such as GGGG for the Global X Pure Gold Miners ETF.

My all-time favorite is humor, with MOO, the symbol for Market Vectors Agribusiness ETF. For literal, it’s hard to beat EGPT for Market Vectors Egypt Index ETF or CORN for the Teucrium Corn Fund. For figurative I like GULF for WisdomTree’s Middle East Dividend Fund
.

The question on whether these vanity plates help a fund’s marketing efforts ends up with a big possibly considering the Global X Farming ETF, with the ticker BARN, gets ready to shut down this month.

Hennessy Continues Cautious View on Economy

Even as the stock market surged on Thursday, Neil Hennessy, chairman and chief investment officer of the Hennessy Funds, continues to hold a cautious outlook for stocks and the economy.

The Dow Jones Industrial Average jumped 340 points Thursday, or 2.9%, to 12209, while the S&P 500 soared 43 points, or 3.4%, to 1285 after bondholders of European debt were browbeaten by politicians into accepting at 50% write-down to their Greek debt.

While the bondholders’ new Greek haircut removes one black cloud hanging over the markets, Hennessy believes there’s enough negativity in the U.S. economy to remain wary of the near future.

On Tuesday, Hennessy announced the rebalancing of his portfolio for his Focus 30 Fund. He screens for five variables, market cap between $1 billion and $10 billion, no foreign stocks, price-to-sales ratio below 1.5, growth in annual earnings, and stock price appreciation over last six months. This strategy has given the fund a 21.7% annualized return over the past three years, beating the S&P 500’s 17.4%. But over the past year the fund underperformed the index by 50 basis points to 10.37%, as of Oct. 27.

A closer look at the portfolio changes gives an idea of what Hennessy thinks will be the growth sectors next year. The biggest changes were consumer discretionary fell from 50% of the portfolio to 30%, while utilities jumped from 0% to 30%, and consumer staples from 0% to 10%. Meanwhile, financials, health care, and materials all fell to zero. With consumer discretionary down and utilities and consumer staples up this long-term growth mutual fund is so defensive it looks like they’ve battened down the hatches for a big storm.

Much like when I spoke with Hennessy a year ago, he continues to feel one of the biggest problems for business is the lack of leadership in Washington.

One of the biggest issues is that the Dodd-Frank regulations remain mostly unwritten. Without a clear understanding of what the government plans to do about new regulations, taxes, or the new healthcare plan, Hennessy says few companies are willing to hire. And with the presidential campaign picking up steam, he has little hope of clarity before the election.

With unemployment high, economic growth remains low, he added. Highlighting his sentiment is U.S. consumer confidence fell in August to its lowest level since March 2009. Also in August, investors pulled the most money out of mutual funds since October 2008, right after the Lehman Brothers bankruptcy.

With the yield on the Dow Jones Industrial Average at 2.9%, Hennessy says, just like last year, companies will focus on dividends, either initiating or increasing existing ones, as a way to drive their stock prices higher. Meanwhile, the Dogs of the Dow, the ten highest-yielding stocks in the Dow industrials, currently yield 4.1%, or 30% higher than the 3.2% yield on the 30-year U.S. Treasury Bond. The Hennessy Total Return Fund is a mutual fund that tracks the Dogs of the Dow strategy.

Hennessy says stocks are cheap because market fundamentals, such as price-to-sales, price-to-book, price-to-cash-flow and price-to-earnings, are significantly below their 5-year and 10-year averages. The market’s P/E ratio is currently a multiple of 13, compared to its 5-year average of 16.

If you want to focus on the two main sectors of the Focus 30 Fund check out the Utilities Select Sector SPDR ETF (XLU) or the Consumer Staple Select Sector SPDR ETF (XLP).

Five good ETFs for dividend investing:
SPDR S&P Dividend ETF (SDY)
WisdomTree Emerging Markets Equity Income Fund (DEM)
iShares S&P U.S. Preferred Stock Index Fund (PFF)
First Trust DJ Global Select Dividend Index Fund (FGD)
Guggenheim Multi-Asset Income ETF (CVY)

For my full analysis of these five ETFs go to Kiplinger.com.

5 Excellent ETFs for Emerging Markets

Emerging-markets stocks are short of breath, which is understandable. Over the previous two years, and for most of this millennium, the stock indexes in up-and-coming countries blew away the Dow Jones industrial average, the Nasdaq 100 index, Standard & Poor’s 500-stock index and other popular benchmarks in the developed world. But now it’s 2011, and emerging markets are backtracking. The benchmark MSCI Emerging Markets Index, which measures 21 emerging-markets country indexes, has lost 5.2% so far this year. The S&P 500, by contrast, is up 1.7% (all return figures are through March 17).

This might warn you to stay away from emerging markets, or if you’ve been investing profitably in these nations, to bring your money home. We disagree. Instead of cashing out, this is an excellent time to enter emerging markets or to increase your stake, and using exchange-traded funds is a great way to do so. The future remains bright for Asia, Eastern Europe and South America, a group of markets headed by the BRICs — Brazil, Russia, India and China — and also featuring such prosperous countries as South Africa, South Korea and Taiwan.

There’s no denying the present problems. A big reason for the emerging markets’ decline so far in 2011 is high inflation, fueled by record or near-record prices for oil and other basic materials, plus soaring food costs. To keep inflation from getting out of control, central banks in some developing countries have raised interest rates and may push them higher. Rising rates slow economic growth by increasing the cost of borrowing. At least one analyst fears that the emerging nations may not raise rates enough to tame rising prices. “We think the primary driver [for the stocks’ decline] is a lack of emerging-market central-bank inflation-fighting credibility in the face of mounting food-driven pricing pressure,” says Alec Young, Standard & Poor’s international stock strategist.

Turmoil in the Middle East and North Africa and the devastating earthquake, tsunami and nuclear-power-plant crisis aren’t helping matters. Though most African and Middle Eastern countries are classified as frontier markets, which are less liquid and more lightly regulated than emerging markets, some investors worry that non-democratic countries that do have the status of emerging markets may also suffer disruptions. And the disaster in Japan has the potential of slowing growth all over the world because of disruptions in the global supply chain.

Nevertheless, the reason to invest in this group still holds: Most of the world’s growth for the next ten years will come from emerging economies. With a few exceptions, they are not drowning in debt, and they didn’t suffer badly from the credit meltdown. They have young, growing middle classes that are buying cars and houses and like to spend their newly earned discretionary income as they please. If all pans out, says Michael Gavin, Barclays Capital’s head of emerging-markets strategy, developing-markets stocks will return an annualized 10.5% through 2021. Those kinds of returns are worth shooting for.

A Broad Index ETF

To earn the return of the MSCI Emerging Markets Index, buy Vanguard MSCI Emerging Market Stock ETF (VWO). You start with the advantage of the lowest expense ratio in the emerging-markets sector, 0.22%, plus you get a dividend yield of 1.8%. The top countries by weighting are China, 17.6%; Brazil, 16.3%; South Korea, 13.7%; Taiwan, 11.2%; South Africa, the only African country in the index, 7.5%; Russia, 7.4%; and India, 7.2%. The fund is down 5.2% this year, but has returned an annualized 43.8% over the last two years, and 12.7% annualized since its creation in 2005.

This ETF doesn’t carry the risks that a manager may pick the wrong stocks or the wrong countries. The drawback is that because it invests only in large and mega-size companies, many of which do big business in the U.S. and Europe, you aren’t making a pure and direct investment in the growth of emerging nations. But so far that hasn’t been much of a drag on results.

To read about the other four ETFs:

• WisdomTree Emerging Markets Equity Income Fund (DEM)
• WisdomTree Emerging Markets SmallCap Dividend Fund (DGS)
• SPDR S&P Emerging Asia Pacific ETF (GMF)
• iShares S&P Latin America 40 Index Fund (ILF)

Go to Kiplinger.com.

Quake Shakes Japan, Nuclear ETFs

Fears over the impact Friday’s earthquake and tsunami will have on Japan’s economy sent the benchmark Nikkei 225 stock average plunging 6.2% in its first day of trading since the 9.0-magnitude quake struck. This led U.S. investors to sell stocks. At Monday’s close, the Dow Jones Industrial Average recovered from its lows, to post a decline of 0.43% to 11993 and the S&P 500 slid 0.54% to 1296.

Here’s a brief look at how ETFs affected by the crisis reacted on Monday The iShares MSCI Japan Index Fund (EWJ) sank 7% to $10.05. The WisdomTree Japan Total Dividend ETF (DXJ) tumbled 7% to $35.620. The Rydex CurrencyShares Japanese Yen Trust (FXY) advanced 0.26% to $120.92.

Meanwhile, the trouble at Japan’s Fukushima Daiichi nuclear complex sent fears rippling through the U.S. nuclear industry. Officials said an explosion occured at the site’s Unit 3 reactor, while the fuel rods at the Unit 2 were fully exposed, causing fears of a nuclear meltdown at the reactor. PowerShares Global Nuclear Energy Portfolio (PKN) plunged 11% to $18.97 and the Market Vectors Uranium + Nuclear Energy ETF (NLR) plummeted 12% to $22.46.

UPDATE: Tuesday 12:09 am. The New York Times has reported the Nikkei index has plunged 13% on worries about the radiation fallout from a potential nuclear disaster. It looks like Tuesday will be a clustercuss.

5 ETFs for the Dividend Investor

If you’re looking to build a portfolio around companies that pay dividends, you’ll find a treasure trove of choices in exchange-traded funds. At least 35 ETFs follow a dividend-focused strategy, investing in income-paying stocks of large companies and small ones, in U.S. corporations as well as firms based overseas. And that doesn’t include the ETFs that invest in real estate investment trusts and master limited partnerships, two groups that tend to offer high yields.

It’s no surprise that dividends have returned to their rightful place as a key building block in investor portfolios. Historically, dividends have accounted for more than 40% of the stock market’s returns. They represent real cash in your pocket now. And after watching their paper profits go up in flames twice during the past decade’s two bear markets, burned investors realize that dividends are the only sure profits they can count on from stocks.

More than that, dividend-paying companies are among the most stable and least volatile companies on the market. The constant need to pay cash means these companies are consistently profitable and have management teams capable of keeping them that way.

Yield — a stock’s annual dividend rate per share divided by its share price — is always an important consideration when building a dividend-based portfolio. SPDR S&P 500 (SPY), an ETF better known as the Spider, tracks Standard & Poor’s 500-stock index; as of December, the ETF yielded 1.8%. SPDR Dow Jones Industrial Average ETF (DIA), formerly called the Diamonds, yielded 2.5%. If you can get yields of this amount from the key market benchmarks, you should eliminate any fund that pays less.

One of the best strategies is to invest in companies that increase their dividends on a regular basis. Firms that boost their payouts regularly are almost always those that generate steadily rising profits and are run by managers who are confident about the future.

Our top choice is SPDR S&P Dividend ETF (SDY), which tracks the S&P High-Yield Dividend Aristocrats Index. It holds 60 companies from the S&P 1500 Index that have lifted their dividends at least 25 straight years. Most are high-quality, large-capitalization stocks that trade at reasonable prices.

Over the past five years, SDY returned 3.3% annualized, beating the S&P 500 by an average of one percentage point per year. In 2010, the ETF returned 16.4%, compared with the S&P’s 15.1% rise. SDY’s annual expense ratio is 0.35%. (All returns are through December 31.)

For the full write up on the other five ETFs, WisdomTree Emerging Markets Equity Income Fund (DEM), First Trust DJ Global Select Dividend Index Fund (FGD), iShares S&P U.S. Preferred Stock Index Fund (PFF), Guggenheim Multi-Asset Income ETF (CVY) go to Kiplinger.com to read 5 ETFs for the Dividend Investors.

Vanguard Takes 4 of 5 Best for 2011

Steven Goldberg at Kiplinger.com writes a lot about ETFs. He starts out his article on the 5 best ETFs for 2011, telling you the worst ones to buy.

He doesn’t like tiny ETFs that invest in a single industry or a single country. I don’t like tiny ETFs, too much risk with an unproven idea. But single industry ETFs can be quite useful. Do you think the oil industry is going to rally this year? Buy the Energy Select Sector SPDR Fund (XLE).He doesn’t like exchange-traded notes, which are essentially debt instruments backed only by the company that issues them. These can be risky too, as in the case of Lehman ETNs. However, I think for most firms, credit risk is not an issue.

Goldberg thinks the majority of ETFs are little more than high-priced gimmicks. Definitely true for some. However, he doesn’t like the WisdomTree family of ETFs, which weights holdings based on dividends or earnings rather than on the more-traditional basis of market capitalization. I think dividend-weighted indexes have less volatility and don’t fall as much in market crashes. I do agree that actively managed ETFs aren’t ready for prime time, either.

Goldberg likes:

• Vanguard Mega Cap 300 Growth (MGK), he says put 40% of your portfolio in this.
• iShares MSCI EAFE Growth Index (EFG)
• Vanguard Total Stock Market ETF (VTI)
• Vanguard Europe Pacific (VEA)
• Vanguard Emerging Markets Stock (VWO)

PowerShares’ Hones in on WisdomTree’s Territory

Invesco PowerShares Capital Management moved in on WisdomTree’s territory with Thursday’s launch of four new ETFs on the NYSE Arca. indexes. All four are based on Keefe, Bruyette & Woods (KBW), but two which track indexes which use a dividend-yield methodology.

WisdomTree, which launched its first ETF in 2006, has built an ETF family entirely based on divided indexes. SPDR and iShares also have some ETFs that follow indexes with a dividend-based weighting.

The PowerShares KBW High Dividend Yield Financial Portfolio (KBWD) uses a dividend yield weighted methodology to give investors access to hard-to-reach financial sub-sectors both domestically and abroad.

The PowerShares KBW Premium Yield Equity REIT Portfolio (KBWY) used a dividend yield weighted methodology that seeks to reflect the performance of approximately 24 to 40 small- and mid-cap equity REITs in the United States.

The PowerShares KBW High Dividend Yield Financial Portfolio (KBWD) uses a dividend yield weighted methodology to track 24 to 40 financial companies engaged in the financial services sector, such as banking, insurance and diversified financial services. It tracks the KBW Financial Sector Dividend Yield Index, which may include securities of business development companies and equity and mortgage REITs.

The PowerShares KBW International Financial Portfolio (KBWX) tracks the KBW Global ex-U.S. Financial Sector Index. Comprised primarily of American Depository Receipts (ADRs), the index is a modified market-capitalization weighted index that follows 60 non-U.S. financial companies engaged banking, insurance and diversified financial services.

The PowerShares KBW Property & Casualty Insurance Portfolio (KBWP) tracks the eponymous index, which is a modified market-capitalization weighted index that follows 24 property and casualty insurance companies.

Podcast of My Recent Radio Appearance

I recently spoke on The Index Investing Show with Ron DeLegge. Here is a podcast of the July 25 show.

I talk about the best dividend-paying industries and the best ETFs for dividend investing. I explain how WisdomTree’s dividend-based ETFs pay dividends and mention Vanguard REIT ETF VNQ, which yields 4.6%, and the Utilities Select Sector SPDR (XLU), which yields 4.3%.

This is a podcast of the entire show, which is 45 minutes long. It’s a good show, but if you just want to hear me, I come on 33 minutes into the show.

Pittsburgh Learns About Dividend Stocks

The Pittsburgh Post-Gazette published a story about dividend investing today. Dividend Stocks for Dummies was mentioned and I was quoted.

The Post says, “Retirement is supposed to be about financial security, which explains why many senior citizens are leery of putting too much faith in an up-and-down stock market. But safe investments, such as bank CDs and government bonds, hardly provide enough income to keep up with inflation.

Larry Carrel, author of “Dividend Stocks for Dummies,” said in the past most stocks paid dividends but dividends fell out of fashion when investors focused on companies that had greater potential for capital appreciation. During the Ronald Reagan administration, he said, tax laws were changed so that capital gains were taxed at a lower rate than dividends.

“So people decided it was better to focus on stock price appreciation because those profits were taxed as capital gains, while dividends were taxed at the same rate as ordinary income,” Mr. Carrel said. “That was the main reason a lot of companies stopped paying dividends.

“By reinvesting the profits instead of paying a dividend to shareholders, it boosted the share price.”

But in 2003 during the George W. Bush administration, the dividend tax was cut to 15 percent, which was the same rate as the capital gains tax, putting dividends and capital gains on a level playing field.

Today, about 72 percent of stocks on the S&P 500 Index pay dividends, Mr. Carrel said.

“Dividends give an investor a portion of the company’s profits now, and [he] can use it any way [he wants],” Mr. Carrel said. “[Investors] get money now instead of having to wait until they sell, and that’s very powerful. You are receiving profits constantly.”

For the full story click here.

The Pittsburgh Post-Gazette story doesn’t mention ETFs, but I will. A great way to get the advantages of dividend investing with ETFs is by purchasing ETFs from WisdomTree. Every ETF launched by WisdomTree tracks an index weighted by dividend payments. This means every single stock in their funds, domestic and international, pays a dividend.