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Articles on VYM

  • Dividend Stock ETF Investing: Growth vs. Value

    05/24/2011

    Dividends have been long considered to be an important metric to value a company. In essence, dividends are the cash payment out of earnings from a company. If a company has a mandate to reward its shareholders with part of its earnings, company management is more responsible for and conscious on their excessive earnings: give back to shareholders or plow them back for future growth. This puts a check on executives to curb their growth at any price or expand company bureaucracy for their own purposes. 

    Dividend ETFs are favorable investing vehicles in retirement investing. This is especially important for retirees or baby boomers who are relying dividends as part of their income. These ETFs have been used to build lower risk and higher return asset allocation portfolios such asRetirement Income ETFs.  Please refer to this article for more details. 

    Two popular strateggies are employed in dividend stock investing: dividend growth (or appreciation) vs. dividend weighted (or hogs). The former selects and weighs more heavily on stocks that have a record of increasing dividends over time. The latter basically weighs more heavily on stocks that have higher yields (with the exception of filtering out some lower grade stocks). If one views dividends are a stream of earnings that are actually materialized to be delivered to shareholders over time, the dividend growth approach is like growth at a reasonable price while dividend hogs is like value investing. 

    These two strategies are used for most of dividend stock ETFs. The following is a list of some of these U.S. dividend stock ETFs: 

    Vanguard Dividend Appreciation (VIG) Growth
    Vanguard High Dividend Yield Indx (VYM) Hogs
    First Trust Value Line Dividend Index (FVD) Growth
    iShares Dow Jones Select Dividend Index (DVY) Hogs
    PowerShares HighYield Dividend Achievers (PEY) Growth
    SPDR S&P Dividend (SDY) Hogs

    The dividend growth strategy puts more weight on high quality companies that have increased their dividends over time. The high dividends are not the primary focus. Companies that increase dividend payout over time in general should have better cash flow and higher confidence in their future earnings. They are also more shareholder friendly. Such strategy has been long adopted in investment communities. Some of the best investment newsletters such as Valueline and Investment Quality Trends have had model portfolios employing this approach for more than 30 years.

    The high dividend (or so called 'dividend hog') strategy, on the other hand, might run into dangers of investing in companies that merely try to maintain high dividends to appeal to investors.

    The following table & chart show the performance of the above ETFs: 

    Portfolio Performance Comparison

    Portfolio/Fund Name1Yr AR1Yr Sharpe3Yr AR3Yr Sharpe5Yr AR5Yr Sharpe
    PEY 19% 105% -2% -9% -4% -18%
    FVD 27% 147% 4% 18% 8% 29%
    DVY 28% 208% 1% 3% 0% -3%
    VIG 25% 143% 5% 18% 5% 16%
    VYM 28% 152% 3% 6%



    From the above, it is clear that dividend growth ETFs outperformed dividend hog ETFs. Part of the reason is that during the 2008-2009 financial crisis, high dividend financial companies such as banks and mortgage companies were severely damaged. 

    Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

    Symbols: VIG, VYM, SDY, FVD, DVY, PEY

     

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  • Foreign Large Cap Equities Deliver Strong Returns Among Dividend Stock ETFs

    05/04/2011

    Foreign Large Cap Equity ETFs allow investors to diversify their portfolios by gaining exposure large stocks in developed economies across the globe. These ETFs track equities from nations like Japan, the UK, and Germany, among many others. These ETFs invest primarily in stocks with market caps in the top 70% of their respective markets.

    Among Dividend Stock ETFs (see table), those that track Foreign Large Cap Equities performed very well in the past week, continuing their string performance over the past 52 weeks.. The iShares Dow Jones International Select Dividend ETF (IDV) returned 2.81% in the past week and over 28% in the past 52 weeks. Also performing well among Dividend Stock ETFs was the iShares MSCI EAFE Index ETF (EFA), which gained 2.69% in the last week and almost 18% during the past year.

    Top Dividend Stock ETF Trends

    4/29/2011

    ETF Name Symbol 1 Week 4 Weeks
    SPDR DJ Wilshire Intl Real Estate RWX 2.98% 5.22%
    iShares Dow Jones Intl Select Div Idx IDV 2.81% 6.02%
    iShares MSCI EAFE Index EFA 2.69% 4.90%
    iShares Dow Jones US Real Estate IYR 2.62% 4.78%
    First Trust Value Line Dividend Index FVD 1.93% 3.15%
    SPDR S&P 500 SPY 1.93% 2.18%
    iShares Dow Jones Select Dividend Index DVY 1.89% 2.32%
    Vanguard High Dividend Yield Indx VYM 1.84% 3.27%
    PowerShares Intl Dividend Achievers PID 1.81% 4.28%
    PowerShares HighYield Dividend Achievers PEY 1.73% 1.78%

     

    The growth of these ETFs has followed an upward trend in the overall equity market in recent periods. As a higher percentage of the world's equity market capitalization continues to shift away from the United States, Foreign Large Cap Equities will continue to bring strong returns to investors.

     

    Foreign Large Cap Equities

    04/29/2011
    Description Symbol 1 Yr 3 Yr 5 Yr Avg. Volume(K) 1 Yr Sharpe
    iShares MSCI EAFE Index EFA 16.26% -3.93% 0.58% 17,665 68.32%
    Vanguard MSCI EAFE ETF VEA 21.49% -0.87% NA 2,135 88.16%
    Schwab International Equity SCHF 19.65% NA NA 180 86.62%
    iShares Dow Jones Intl Select IDV 26.81% 1.73% NA 156 107.04%
    iShares MSCI EAFE Value Index EFV 14.36% -4.8% -1.08% 133 55.66%
    PowerShares Intl Dividend Achievers PID 20.98% -1.56% 2.87% 121 112.83%
    iShares MSCI EAFE Growth Index EFG 19.53% -2.71% 1.55% 84 86.67%
    PowerShares DWA Dev Mkts Techn PIZ 22.65% -0.49% NA 115 93.38%

     

    In addition to the ETFs mentioned above, others in the Foreign Large Cap sector have shown strong growth in recent periods. The PowerShares DWA Developed Markets Technical ETF has returned 22.65% in the past year and the Vanguard MSCI EAFE ETF (VEA) gained 21.49% during the same period. These strong gains have helped to offset the large valuation declines experience during the recent financial crisis.

    While high equity valuations may trigger a market retraction in coming periods, Foreign Large Cap Equity ETFs should remain a substantial part of any well-diversified portfolio.

     

    Symbols: EFA, VEA, SCHF, IDV, EFV, PID, EFG, PIZ, RWX, IDV, EFA, IYR, FVD, SPY, DVY, VYM, PEY

     

    Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

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  • Tactically Manage An Income Producing Portfolio With Commodity Exposure

    03/25/2011

    Coming out of the great recession, governments around the world have adopted  loose monetary policies to prop up the economies. These include U.S. central bank's QE2 (Quantitative Easing act 2) and Euro Zone's bailout of troubling peripheral countries like Greece. The current natural disasters in Japan and other countries can only add more demand for the stimulus. These policies resulted in commodity hoarding, especially in material hungry emerging economies such as China. 

    It is critical to have anti-inflation anti-currency devaluation component. In this article, we explore the feasibility of adding commodity exposure to an income producing portfolio. Commodity ETFs are effective tools to cope with the current situations. In a portfolio that is designed to preserve capital for retirement needs. However, because of volatile and somewhat dangerous nature of commodites, one needs to actively manage such a portfolio by adopting tactical asset allocation strategies. 

    Income producing ETFs such as high yield stock ETFs and bond ETFs can be used to build a lower risk portfolio for retirement income producing purpose. We study the two plans: one is without commodity exposure and the other one with the exposure. 

    Retirement Income ETFs with Commodities plan is an extension to Retirement Income ETFs: adding extra commodity asset class with PowerShares DB Commodity Index (DBC) and GreenHaven Continuous Commodity (GCC). This plan consists of 37 funds. These funds enable investors to gain exposure to 6 major assets: US Equity, Commodity, Foreign Equity, Emerging Market Equity, REITs, Fixed Income. Compared with Retirement Income ETFs, this plan has two additional ETFs that represent the extra commodity asset class.  

    The following is the list of the candidate ETFs in the Retirement Income ETFs with Commodities

     

    The list of minor asset classes covered by Retirement Income ETFs with Commodities
    Commodities Broad Basket: DBC, GCC
    Diversified Emerging Mkts: EEM, VWO, DEM
    Emerging Markets Bond: EMB, PCY
    Foreign Large Value: PID, IDV
    Global Real Estate: RWX
    High Yield Bond: HYG
    Inflation-protected Bond: TIP
    Intermediate Government: IEI
    Intermediate-term Bond: CIU, CORP, MBB
    Large Blend: VIG
    Large Value: DVY, SDY, VYM, FVD
    Long Government: IEF, TLT
    Long-term Bond: LQD, VCLT
    Mid-cap Value: PEY
    Miscellaneous Sector: PFF
    Muni National Long: MUB
    Muni Short: SHM
    Real Estate: IYR, ICF, VNQ
    Short Government: SHY
    Short-term Bond: CSJ, VCSH
    World Bond: BWX, WIP 

     

    As of Mar 24, 2011, Retirement Income ETFs with Commodities investment choice is rated as and Retirement Income ETFs investment choice is rated as average based on MyPlanIQ Plan Rating methodology that was designed to measure how effective a plan's available investment funds are.  It has the following detailed ratings:

     

    The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies (SAA and TAA , both provided by MyPlanIQ). 

    Performance chart (as of Mar 24, 2011)

    Performance table (as of Mar 24, 2011)

    Discussions:

    1. Commodity ETFs are volatile. In fact, PowerShare DB Commodity Index ETF (DBC) lost 32% in 2008 while iShares S&P GSCI Commodity Index (GSG) lost a whopping 46% in the same year. 

    2. Simply adding commodity ETFs to a strategic asset allocation portfolio (buy and hold with regular rebalancing) did not improve the returns in the past five years. This is again due to the big loss incurred in commodtiy ETFs. 

    3. Adding commodity ETFs as fund candidates in a tactical asset allocation portfolio, however, can improve returns. In the past five years, Retirement Income ETFs with Commodities Tactical Asset Allocation Moderate had extra 1% annualized return over Retirement Income ETFs Tactical Asset Allocation Moderate

    In conclusions. commodity ETFs are effective tools to cope with the current situations. In a portfolio that is designed to preserve capital for retirement needs. However, because of volatile and somewhat dangerous nature of commodites, one needs to actively manage such a portfolio by adopting tactical asset allocation strategies. 


    Disclosure:

    MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

    Symbols:DBC,GCC,GSG,EEM,VWO,DEM,EMB,PCY,PID,IDV,RWX,HYG,TIP,WIP,IEI,CIU,CORP,MBB,VIG, DVY,SDY,VYM,FVD,IEF,TLT,LQD,VCLT,PEY,PFF,MUB,SHM,IYR,ICF,VNQ,SHY,CSJ,VCSH,BWX,

    Exchange Tickers: (DBC),(GCC),(GSG),(EEM),(VWO),(DEM),(EMB),(PCY),(PID),(IDV),(RWX),(HYG),(TIP),(WIP),(IEI),(CIU),(CORP),(MBB),(VIG),(DVY),(SDY),(VYM),(FVD),(IEF),(TLT),(LQD),(VCLT),(PEY),(PFF),(MUB),(SHM),(IYR),( ICF),(VNQ),(SHY),(CSJ),(VCSH),(BWX)

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  • Dividend Stock ETFs Somewhat Defensive But Not Enough to Withstand Market Stress

    03/17/2011

    The week ending on last Wednesday was not easy to investors: the biggest events in the week are the Japanese biggest earthquake in the last 20 years and its increasingly dangerous nuclear reactors meltdown (still unfolding). In the domestic economic side, the housing starts (home construction) in February plunged to the lowest level in almost a year, indicating the housing situation is yet to stabilize. 

    The performance of dividend stock ETFs for the week ending on Wednesday (3/16/2011) varied. Dividend ETFs clearly showed their defensive natures: for U.S. equity, the broadbase S&P 500 (SPY) dropped 4.7%, while SPDR S&P dividend (SDY) dropped 4.1%, iShares Dow Jones Dividend Select (DVY) dropped 4.2%. In fact, all of U.S. stock dividend ETFs fared better than S&P 500. A standout is the iShares S&P U.S. Preferred ETF (PFF), losing only 0.6%. Similarly, Powershares Intl Dividend Achievers (PID) did much better than broadbase MSCI index (EFA): -5.3% vs. -9.1%. For more detailed performance, please refer to here.

    The following table shows the trend scores of dividend ETFs. A noticeable jump is for the Preferred ETF (PFF): it now rose from the last place to the middle in the table, indicating a clear defensive nature of the preferred stocks.

    Assets Class Symbols 03/16
    Trend
    Score
    03/09
    Trend
    Score
    Direction
    iShares Dow Jones US Real Estate IYR 4.65% 9.61% v
    Vanguard Dividend Appreciation VIG 2.98% 9.2% v
    SPDR S&P 500 SPY 2.79% 9.41% v
    Vanguard High Dividend Yield Indx VYM 2.7% 9.15% v
    iShares Dow Jones Select Dividend Index DVY 2.43% 8.42% v
    iShares S&P U.S. Preferred Stock Index PFF 2.32% 3.38% v
    First Trust Value Line Dividend Index FVD 1.91% 8.22% v
    SPDR S&P Dividend SDY 1.74% 7.95% v
    WisdomTree Emerging Market Equity Income DEM 1.66% 8.12% v
    PowerShares Intl Dividend Achievers PID 1.01% 7.84% v
    PowerShares HighYield Dividend Achievers PEY 0.12% 7.11% v
    iShares MSCI Emerging Markets Index EEM -0.44% 6.3% v
    iShares Dow Jones Intl Select Div Idx IDV -0.92% 8.05% v
    SPDR DJ Wilshire Intl Real Estate RWX -1.47% 9.74% v
    iShares MSCI EAFE Index EFA -4.57% 6.48% v

    The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).


    Portfolios that use dividend ETFs in place of broadbase stock index ETFs showed a slight advantage over a pure broadbase index ETFs based portfolios. For example, we introduced a retirement income ETF investment plan that uses dividend stock ETFs. The following chart shows the five day performance comparison between the Strategic Asset Allocation (SAA) moderate risk portfolio and a broadbased Five Core Asset ETF (SAA) moderate risk portfolio



    In fact, the dividend ETF plan's Strategic Asset Allocation (SAA) moderate risk portfolio had a big 28% drop in 2008. That shows one can not simply rely on dividend paying ETFs to avoid big loss.

    If a more tactive Tactical Asset Allocation (TAA) strategy is used for these dividend ETFs, performance can be improved dramatically: 

    Portfolio Performance Comparison

    Portfolio Name 1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
    Retirement Income ETFs Strategic Asset Allocation Moderate 8% 63% 4% 17% 4% 16%
    Retirement Income ETFs Tactical Asset Allocation Moderate 5% 60% 8% 72% 9% 68%
     

     

    The takeaway is that dividend stock ETFs are more defensive in nature. However, to achieve greater risk reduction, a more active tactical asset allocation strategy should be employed.

    Symbols: RWX,SPY,IYR,VIG,IDV,VYM,EEM,PID,EFA,FVD,DVY,PEY,SDY,PFF ,


    Symbols: (NASDAQ: RWX), (NASDAQ: SPY), (NASDAQ: IYR), (NASDAQ: VIG), (NASDAQ: IDV), (NASDAQ: VYM), (NASDAQ: EEM), (NASDAQ: PID), (NASDAQ: EFA), (NASDAQ: FVD), (NASDAQ: DVY), (NASDAQ: PEY), (NASDAQ: SDY), (NASDAQ: PFF)

    Disclosure:

    MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.


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  • Schwab ETF Select List Plan Offers Diversification and High Quality Fund Selection

    03/16/2011

    by Kevin Carr, A MyPlanIQ Expert User

    On March 9, 2011, Charles Schwab announced the release of the ETF Select List.  The quarterly Schwab ETF Select List was created by Charles Schwab Investment Advisory, Inc. and is a filtered list of all of the ETFs in the marketplace, highlighting pre-screened, low-cost ETFs.  Schwab used quantitative and qualitative screens to filter each ETF and build the list, covering 6 major asset categories and 45 minor asset categories. All ETFs, including Schwab ETFs, are evaluated using the same criteria and broken into sectors for US Equity, Foreign Equity, Emerging Market Equity, Fixed Income, Commodity and REITs.

    The ETF Select List gives investors a choice of low-cost, pre-screened ETFs.  Schwab highlights just one ETF in each category, chosen based on specific criteria including expense ratio, risk, structure and how well it fits into its category. To make the list, an ETF has to meet minimum criteria that include assets under management, including narrowness of index, trading volume, bid/ask volatility, risk, annualized cost of ownership, fund structure and fit within a given category.  The list excludes exchange-traded notes (ETNs), inverse or leveraged ETFs, actively managed ETFs, and unmanaged baskets of securities.

    While the ETF Select List has only been out a few days, I constructed a plan on MyPlanIQ platform.  The Schwab ETF Select List  has no redemption periods, is commission efficient and offers low expenses. 

    As of March 13, the Schwab ETF Select List Plan has a four star investment menu rating with a 99% diversification score and an overall above average investment choice based on MyPlanIQ Plan Rating methodology .  The Plan Rating methodology is designed to measure how effective a plan’s available funds are using key factors such as diversification, fund quality and portfolio building.

    Attribute   Schwab ETF Select List   Six Core Asset ETF Benchmark
    Diversification   great (99%)   average (63%)
    Fund Quality   above average (70%)   below average (23%)
    Portfolio Building   average (53%)   above average (70%)
    Overall Rating   above average (72%)   average (54%)


    The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies (SAA and TAA , both provided by MyPlanIQ). For comparison purpose, we also include the moderate model portfolios of a typical 6 asset SIB (Simpler Is Better) plan . This SIB plan has the following candidate index funds and their ETFs equivalent:

    US Equity: SPY or VTI
    Commodity: DBC
    Foreign Equity: EFA or VEU
    REITs: IYR or VNQ or ICF
    Emerging Market Equity: EEM or VWO
    Fixed Income: AGG or BND

    Performance chart (as of Mar 15, 2011)



    Performance table (as of Mar 15, 2011)

    Currently Commodities, Real Estate and US Equity are doing well. These asset classes are available to Schwab ETF Select List participants.

    To Summarize, Schwab ETF Select List Plan offers wide diversification, high quality funds with low expenses. compared with other brokerage supported ETF plans, it is very favorable. From time to time, we will review the plan.

    Symbols:DBC,DBA,IAU,DBB,USL,PFF,VNQ,XLY,XLP,XLE,XLF,XLV,XLI,XLB,XLK,IYZ,XLU,BND,SCHO,SCHR,TLH,SCHP,CIU,JNK,BWX,MUB,SCHF,EFG,EFV,SCHC,SCHE,VEU,VT,VGK,VPL,EWJ,GXC,SCHX,SCHG,SCHV,VO,VOT,VOE,SCHA,VBK,VBR,SCHB,VYM,

    Symbols (exchange): (DBC),(DBA),(IAU),(DBB),(USL),(PFF),(VNQ),(XLY),(XLP),(XLE),(XLF),(XLV),(XLI),(XLB),(XLK),(IYZ),(XLU),(BND),(SCHO),(SCHR),(TLH),(SCHP),(CIU),(JNK),(BWX),(MUB),(SCHF),(EFG),(EFV),(SCHC),(
    SCHE),(VEU),(VT),(VGK),(VPL),(EWJ),(GXC),(SCHX),(SCHG),(SCHV),(VO),(VOT),(VOE),(SCHA),(VBK),(VBR),(SCHB),(VYM)

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  • Riding High with Global Economy, International REITs Offer Currency and Inflation Hedge

    03/10/2011

  • Dividend ETFs: Public REITs Offer Good Value While Economy Recovers

    03/04/2011

  • Dividend Stock ETFs All Dropped, But Showing Defensive

    02/24/2011

  • Initiating Tracking of US Subclasses

    02/22/2011

  • Yield Quest Turns from Bonds to High Yield Stocks

    12/16/2010

  • ETF's for Income Nov 29

    11/29/2010

  • ETF's for Income Rebound Well

    11/23/2010

  • High Dividend Stock ETFs for Income Producing Portfolios

    11/12/2010

  • Retirement Income Portfolio Building Using ETFs and Asset Allocation Strategies

    11/12/2010

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