Investors who are worried about inflation should consider dividend exchange traded fund strategies.
Both the consumer-price index and the producer-price index have increased faster than expected, weighing on broad swathes of both the equity and fixed income markets and contributing to the heightened volatility in recent weeks. Many fear that high inflation will force the Federal Reserve to cut back on its accommodative momentary policies and hike interest rates sooner rather than later. With higher rates, the current value of future profits is reduced, which drags on stock valuations.
However, dividend-paying stocks have outperformed non-dividend payers as traders adjust to a potentially rising inflation environment. According to Evercore data, there is a close correlation over the last decade between inflation expectations, the 10-year Treasury yield, and the relative performance of high-dividend stocks, Barron’s reported.
The investment bank’s data indicated that if expectations for inflation and bond yields are both high enough, dividend-paying stocks can keep outperforming low payers.
Observers have argued that when bond yields rise, income hunters would out shares with higher yields as a better store of their money. Additionally, dividend payers also benefit from a strengthening economy, and they are largely comprised of cyclical sectors and value style funds.
In late March, Guinness Atkinson became the first mutual fund sponsor to convert its mutual fund products to ETFs, doing so with the SmartETFs Dividend Builder (DIVS ) and the SmartETFs Asia Pacific Dividend Builder (ADIV ) – a pair of actively managed dividend growth strategies.
The SmartETFs Dividend Builder ETF is an actively managed dividend growth strategy that seeks dividend-paying companies that have provided an inflation-adjusted cash flow return on investment of at least 10% in each of the last 10 years. The ETF invests in approximately 35 dividend-paying companies globally. The strategy continues to be managed by Dr. Ian Mortimer and Matthew Page.
The SmartETFs Asia Pacific Dividend Builder ETF is an actively managed dividend strategy focused on investing in dividend-producing stocks of mature companies in the Asia-Pacific region. The strategy is managed by Edmund Harriss.
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