ETF XRAY

Dividend Oriented ETFs

Some active exchange-traded funds have overly complicated models and high turnover rates but Morningstar's Sonya Morris highlights the Vanguard Dividend Appreciation ETF (VIG). This is a dividend-oriented fund that tracks the Mergent Dividend Achievers Select Index, a market-cap-weighted index of firms that have increased their dividends in each of the last 10 years. But Vanguard goes a step further by developing quantitative screens that are applied to the benchmark to identify those companies that are most likely to continue to grow dividends over time. For example, recently it tossed out names such as Citigroup C, Pfizer PFE, and Chevron CVX because the model indicated that these companies may not be able to increase their payouts as time goes on.

Morningstar goes on to base its recommendation on the reasoning that companies that have the financial resources to grow their dividends for 10 straight years are generally solid franchises so it's not surprising that this fund dedicates almost 70% of its portfolio to stocks with strong balance sheets and a competitive edge. Dividend growth is an excellent sign of financial health, and this fund's portfolio has a cumulative return on equity higher than most competing ETFs.

The WisdomTree family of ETFs also has the bulk of its ETFs selected and weighted by their cash dividend records and is another alternative for ETF investors on the hunt for yield with quality. Lastly, the Powershares International Dividend Acheivers (PID) ETF invests in a basket of ADRs that have solid dividend records.

By Carl Delfeld of the Chartwell ETF Advisor

Advantages of the Preferred ETF

Preferred stocks have the primary advantage of high yields which is an important consideration for baby boomers trying to stetch their nest egg. Will McClatchy of ETFzone writes about the pluses and minuses of the iShares S&P U.S. Preferred Stock (AMEX:PFF) which is an exchange-traded fund or ETF that has a basket of the most liquid and high yielding preferred stocks in its basket. Here is how preferreds stack up against the competition according to Standard and Poors.

Preferred Stock 6.4%
Bonds 5.4%
6 Month CD 4.6%
Money Market 3.3%
Common Stock 1.8%

Currently, the ETF has 44 companies in its basket with Ford Motor Company's preferred stock at the top of the list. The next 9 are financial companies of one sort or another, including Met Life and Citigroup, and financial firms dominate the remainder of the list.

By Carl Delfeld of the Chartwell ETF Advisor

Singapore Tax Cut and ETF

The 2007 Singapore budget unveiled last week has some measures that should benefit companies in the Singapore exchange-traded fund or ETF (EWS) basket. The Economist highlights the cut in the headline rate of corporate income tax which will be reduced from 20% to 18%. This will bring Singapore to within half a percentage point of Hong Kong, where profits are taxed at a rate of 17.5%. The tax exemption for small and medium sized enterprises will also be increased but sales taxes will go up to make up some of the revenue shortfall.

While Singapore does recognize a need to address lower income needs, public spending in Singapore is still exceptionally low as a percentage of GDP—at about 15%.

Chartwell's Asian Opportunity ETF portfolio has had the Singapore as a core holding for some time seeing it as a quality China play at the heart of Asian growth.

New Dividend Yielding ETF Portfolio

The Chartwell Global Dividend/Income ETF portfolio is for investors needing to generate retirement income and fixed income alone will probably not get the job done. Investors need the prospect for capital appreciation plus some downside protection from high dividend lower volatility stocks. Here is a brief overview of some of the ETFs in the portfolio at the start of 2007. 

The PowerShares International Dividend Achievers ETF basket (PID) contains 60 international ADRs (American Depository Receipts) that trade on U.S. exchanges. All of these companies have increased their annual dividend for five or more consecutive fiscal years. The portfolio is rebalanced quarterly and reconstituted annually. About 55% of the companies in this ETF are classified as large-cap value, 16% mid-cap value and 13% small cap value.

Another interesting new ETF from Powershares is the Financial Preferred Equity ETF (PGF). This is the first ETF to provide investors access to preferred shares within the tax efficient ETF structure. The preferred marketplace is over $200 billion and again it is a way to enjoy potential of capital appreciation with dividend income. All dividends from this ETF are expected to be qualified dividend income. 

Another option is the recently introduced First Trust Morningstar Dividend Leaders ETF (FDL). This is a portfolio of the top 100 highest yielding U.S. stocks screened for consistent records of dividend payments as well as the ability to sustain future payments. Individual company weightings in the ETF are capped at 10% and stocks weighing more than 5% each cannot exceed 50% of the total portfolio. 

Then of course there is a wide choice of ETF options from the fast-growing family of WisdomTree ETFs which weight all holdings in their ETFs based on dividends.

Real Estate Exchange Traded Funds with Dividend Yields

By DE Smith of MyPortfolioView.com

Not only have Real Estate ETFs rewarded their investors with double digit returns they’ve done it while earning their owners a nice dividend yield.

Real Estate ETFs in order of dividend yield.
1. VNQ – Vanguard REIT Index ETF (5.14%)
2. RWR – DJ Wilshire REIT ETF (4.63%)
3. ICF – iShares Cohen & Steers Realty Majors (3.51%)
4. IYR – iShares Dow Jones US Real Estate (1.86%)

The attached “Overview” chart from MyPortfolioView.com illustrates the growth of Real Estate ETFs over the last 13 months. Each Exchange Traded Fund (ETF) is tracked based on supply and demand on a unique point and figure chart. The newest ETF SPDRs international ETF (RWX) is off to a nice start with 8.17% YTD growth.

Pacific Ex-Japan ETF (EPP) Top Holding XRAY

According to the most recent data BHP Billiton makes up 7.39% of the iShares MSCI-Pacific Ex-Japan ETF [EPP]. Below is a summary of their business from their own website.

Global Operations

With some 38,000 employees working in more than 100 operations in approximately 25 countries, which together underpin our strategic focus of:

• A world class diversified asset base
• Stable and increasing cashflow
• Cost savings and operational efficiencies to provide strong returns and margins
• A range of premium growth options
• A committed and engaged workforce
• An overriding commitment to sustainable development

Their Business

• A leading supplier of core steelmaking raw materials
• World’s second largest copper producer
• World’s second largest exporter of energy coal
• World’s third largest producer of nickel metal
• World’s fourth largest producer of uranium
• World’s sixth largest producer of primary aluminium
• A significant producer of oil and gas

They also have substantial interests in diamonds, silver and titanium minerals.