Dividend ETFs – Weekly ETF Fund Flows

| March 24, 2014 | 0 Comments

fund flowsA few dividend ETFs popped up on our list of the top weekly inflows and outflows last week.  It’s a good indication of where the best opportunities are in the slice of the US equity market.

Vanguard Dividend Appreciation (VIG) led all ETFs with net inflows of $2.3 billion last week. 

VIG isn’t your typical dividend ETF.  In fact, its current dividend yield of 1.85% is only slightly higher than the dividend yield of the entire S&P 500.  And its yield is much lower than many other dividend ETFs that frequently sport a yield of 3.5% to 4%.

As the name suggests, VIG is designed for dividend growth, not dividend yield.  In order to be included in this fund, a stock must have a history of increasing dividends year over year. 

As a result, the portfolio of stocks in this ETF is much different than your typical dividend ETF.  It shies away from your typical dividend stocks in sectors like utilities and telecom and has large portions of the portfolio dedicated to industrials and consumer goods.

These stocks not only pay a dividend, they’re also increasing the size of payout.  For investors looking to build their nest egg now and capture higher payouts down the road, VIG kills two birds with one stone. 

iShares US Real Estate (IYR) was at the other end of the asset flows last week.  Investors pulled $537 million out of IYR.

IYR tracks an index of US real estate stocks and Real Estate Investment Trusts or REITs.  IYR and other REIT ETFs are popular among investors looking for dividends. 

REITs are specialized investments in real estate or real estate mortgages.  They received preferential tax treatment for all dividends that are distributed to the owners. 

But in order to qualify for REIT status in the US, the company must distribute 90% of their taxable income to their investors. 

The recent outflow of money from IYR is likely due to the changing outlook for interest rates.  As you know, the Fed recently changed their guidance about interest rates.  And they’re likely to start raising interest rates sooner than expected.

In short, rising interest rates are bad for REITs.  Over the last 30 years when interest rates are moving higher, we typically see REITs move lower.

As we near the first Fed rate hike since the 2008 financial crisis, we could see the outflow of money from IYR and other REIT ETFs accelerate.

That wraps up this week’s ETF fund flows…

Keep in mind, there’s a lot of information about ETF fund flows.  And it can be a very useful tool as long as you know what you’re looking for.

Good Investing,

Corey Williams

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Category: ETFs, Market Analysis

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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