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Last Week's ETF Asset Flow Winner: Dividend Investing
Dividend investing is in vogue amid huge volatility and uncertainty caused by the banking crisis. This is especially true as dividend stocks and ETFs are major sources of consistent income for investors in any type of market though they do not offer dramatic price appreciation. These stocks tend to outperform in volatile markets and can reduce the volatility of a portfolio.
Inflows to dividend ETFs were noteworthy last week. Vanguard High Dividend Yield ETF (VYM - Free Report) , Vanguard Dividend Appreciation ETF (VIG - Free Report) and iShares Select Dividend ETF (DVY - Free Report) hauled in about $2.66 billion, $2.54 billion and $2.08 billion in assets, respectively.
Investors bet big on stable companies that have a history of paying out profits to shareholders, hoping that will minimize immense losses across the broader market. Though cash-like treasuries are offering the highest income in over a decade, dividend-paying stocks are gaining appeal in a rising rate environment as bond ETFs underperform in a rising rate environment.
High-dividend ETFs mustered more assets than dividend aristocrats. Since higher rates are in place currently, investors may be interested in equities that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the ways to ride out the turbulent times.
Even if the stock or the fund falls, higher current income would go a long way in protecting investors’ total returns. After all, high-dividend ETFs provide investors avenues to make up for capital losses, if that happens at all.
On the other hand, dividend aristocrats are blue-chip dividend-paying companies with a long history of increasing dividend payments year over year. These generally act as a hedge against economic uncertainty and act as a quality exposure. Additionally, aristocrats tend to skew the portfolio to less-volatile sectors and mature companies.
Intermediate U.S. Treasury ETFs: A Winner Too
iShares 7-10 Year Treasury Bond ETF (IEF - Free Report) andSPDR Portfolio Intermediate Term Treasury ETF (SPTI - Free Report) amassed about $3.29 billion and $1.62 billion in assets last week. As bond yields dived due to a flight to safety, investors’ interest for intermediate bond ETFs increased.
The 10-year U.S. treasury yield slumped to 3.39% on Mar 17 from 3.55% recorded at the beginning of the week. Bets over less-hawkish Fed actions in the near term as well as risk-off trade sentiments (amid growing recessionary fears due to banking crisis) dragged down bond yields and favored inflows to the afore-mentioned bond ETFs.