Dividend ETFs Battle for Inflows: The Competition Heats Up

by on November 26, 2013 | ETFs Mentioned:

As investors have grown frustrated with near-zero rates in the U.S., dividend investing has become a staple in the portfolios of many. Though Ben Bernanke will leave the Fed Chair position in January, it is largely believed that interest rates will not be touched until mid-2015 at the very earliest; this has caused many investors to look beyond the fixed income sector for yield. Those that seek or even rely on annual income from yields have been turning to dividend ETFs as an outlet, helping to propel a number of these products further [for more ETF news and analysis subscribe to our free newsletter].

Below, we outline some of the most popular dividend ETFs and the inflows they have raked in thus far in 2013 with some surprising results.

  • Dividend Appreciation ETF (VIG, A): One of the largest and most popular dividend funds in the space, VIG has nearly $19 billion in assets under management and only invests in firms that have increased their dividend for 10 consecutive years or more. VIG is currently yielding 2.01%.
  • iShares Select Dividend ETF (DVY, A-): DVY debuted in 2003 and has amassed approximately $13.4 billion in assets since that time. The fund screens stocks by dividend growth, payout ratio and average daily volume to determine its holdings. DVY is currently yielding 3.08%.
  • Dividend ETFsSPDR S&P Dividend ETF (SDY, A-): Recently celebrating its eighth birthday, SDY maintains a solid $13 billion in assets. This fund has one of the more strict rules for inclusion, as it selects its constituents from a pool of stocks that have increased their dividends for a minimum of 25 consecutive years. SDY is currently yielding 2.39%.
  • SuperDividend ETF (SDIV, A-): The youngest of the bunch, SDIV debuted in 2011 and has attracted an impressive $785 million in assets over that time period. This fund takes a different approach to its holdings by assigning an equal weighting to some of the highest yielding securities in the world. SDIV is currently yielding 7.67%.

Dividend ETF Inflows: A Wide Range

One of the best ways to gauge the popularity of a fund among investors is to check its net flows to see if investors are buying or selling the ETF. The chart below displays the inflows for each of the four aforementioned ETFs in millions.

Clearly, VIG takes the cake when it comes to overall inflows, but this was probably expected given that it is by far the largest by assets of any of the group. With all four funds spanning a wide range of assets, we present annual inflows as a percentage of current assets, which dramatically changes the picture.

SDIV’s inflows relative to its size dwarf the competition, as the fund has watched its total assets nearly triple in 2013 while some competitors have only experienced moderate growth given their size.

Investors Embracing SDIV

At just over two and a half years SDIV is knocking on the door of $1 billion in assets, a very rare feat for a fund of that age. The current rate environment and desire for income has certainly been one of the biggest catalysts for SDIV’s rise to stardom, but its yield in equal weighting have also helped reel in investors. The monthly dividend-paying fund had some trouble with consistency in 2012, with payouts fluctuating wildly every four weeks. Thus far, 2013 seems to have corrected that problem, as its payouts have all fallen around a very tight and predictable range [see also Two Investments to Consider when You’re Coming off the Sidelines].

For investors looking for stable income, these four funds are a great start for your research, as each has their own strategy and pros that set them apart from the industry.

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.