Todd Rosenbluth, head of research at VettaFi, recently appeared on the ETF Report on Yahoo Finance to discuss trends in flows within bond mutual funds and ETFs as well as some under-the-radar high dividend yielding ETFs to consider.
The current rotation from bond mutual funds to bond ETFs is part of a larger pattern that has been going on for years of money flowing out of mutual funds, historically equity ones, and into ETFs. While bond mutual funds were a holdout for years for investors, that loyalty appears to be coming to an end as money exits bond mutual funds and is allocated to bond ETFs.
“They have the cost savings, the ability to do some tax-loss harvesting, and get the benefits of higher yield, and there’s much more liquidity tied to fixed income ETFs than there are mutual funds,” Rosenbluth said.
It’s a trend that is expected to continue well into the second half of the year, according to Rosenbluth, as money loss causes investors to become more money conscious, particularly regarding management fees. The added benefits of diversification and liquidity that bond ETFs like the iShares National Muni Bond ETF (MUB ) offer mean that these types of funds will likely continue to see inflows as bond mutual fund losses stay around the 9% mark that they are currently at.
High Dividend ETFs and Market Rotations
Pivoting to talk about dividends, Rosenbluth explained that a recent VettaFi survey found that most advisors are seeking income in high-dividend yielding equities and discussed two funds that might be under the radar currently.
The ALPS Sector Dividend Dogs ETF (SDOG ) is one dividend ETF to consider that is diversified across sectors and includes the five highest yielding stocks on an annualized basis, offering income potential while diversifying for risk.
The Global X SuperDividend U.S. ETF (DIV ) is another dividend fund to consider that includes the highest yielding stocks (currently with a yield above 5%) but does have a heavier weight on utilities
Investors are rotating back into equities as they approach markets with a bit more tolerance for risk than in the first months of 2022. This has been reflected in the money rotation back into ETFs like the iShares Core S&P 500 ETF (IVV ), the Vanguard S&P 500 ETF (VOO ), and the SPDR S&P 500 ETF Trust (SPY ).
“We have seen a rotation away from growth and a rotation towards value for much of the year: growth has underperformed,” Rosenbluth said of areas that investors have moved away from in 2022. “Investors are more conscious about the risks that they’re taking within the equity marketplace in a rising rate environment.”
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