Dividend ETF strategy misfires, wiping out billions

financialpost.com:

Reeling from a bear market last year, beaten-up investors decided to send more than US$60 billion to exchange-traded funds focusing on dividends.

Eleven months later, the trade is misfiring.

Rather than give shelter in a stormy season, the largest dividend ETFs have been left behind by a tech-obsessed market whose biggest proxies have surged 15 per cent or more. At the bottom of the leader board is the US$18 billion iShares Select Dividend ETF (ticker DVY), down 5.4 per cent on a total return basis after all-in bets on utilities and financial stocks fizzled.

It’s the latest lesson on the dangers of market timing. Investors wanted exposure to companies with a history of paying out profits as a precaution amid the Federal Reserve’s most aggressive tightening cycle in 40 years. Instead they were saddled with underperforming companies that proved especially vulnerable when yields shot higher.

The casualty list includes the US$20 billion SPDR S&P Dividend ETF, down 3 per cent (SDY) on a total-return basis, the Schwab U.S. Dividend ETF (SCHD), off 2.4 per cent and Vanguard’s High Dividend Yield ETF (VYM), which is mostly flat for the year. Funds that have eked out gains have mostly posted small ones, like the Invesco Dividend Achievers ETF (PFM) which is up 6.6 per cent, the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) which is up 2.3 per cent and the Vanguard Dividend Appreciation ETF (VIG), which is up 9.6 per cent and focuses on mid and large-cap stocks.

Invesco’s Nick Kalivas said that PFM’s lagging performance is linked to its underweight to the so-called Magnificent Seven and overweight to less “growthy” technology names like Oracle Corp., Cisco Systems Inc. and IBM Corp. ProShares said that the companies in NOBL