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Summary The dividend of 5.69% looks incredible until investors take a look at the total return. The individual holdings have fairly high weights which suggest higher volatility. The sector allocations for utilities look great, but the lack of other defensive sectors is fairly strange. Looking at historical performance confirms the higher volatility of the fund and a negative total return over a long time period. The SPDR S&P International Dividend ETF (NYSEARCA: DWX ) is a weird fund that doesn’t quite seem to go together for me. I’ve seen quite a few good dividend ETFs lately and started to wonder if my standards were simply slipping. It seems I was just due for finding one that didn’t work for me. Expenses The expense ratio is a .45%. This is quite a bit too high for my tastes. Dividend Yield The dividend yield is currently running 5.69% according to Yahoo Finance. This is just a beastly dividend yield and looks very attractive, though investors should expect weak trailing returns for most international ETFs. Over the last several years the domestic market has substantially outperformed the international markets. Holdings I put grabbed the following chart to demonstrate the weight of the top 10 holdings: The first thing to notice about the international allocations here is that the weightings are fairly heavy near the top of the chart. Around 25 to 30% of the portfolio is allocated to the top 10 holdings. This isn’t what I would consider extreme, but it is a little heavy for investors hoping for substantial international diversification to lower their risk since international stocks can be especially volatile. Sectors It’s fairly normal to see the financial sector receive a heavy allocation in dividend ETFs and I’ve found international allocations are also prone to placing a higher weight on the financial sector. With both factors in place here, it is no surprise that the financial sector is receiving such a heavy weight. On the other hand the heavy allocation to utilities is what I would consider fairly attractive since utilities have a great position in negotiating on price. The sector is generally going to be less competitive and investors can expect the companies to be fairly stable in being able to generate some profits. It is interesting to see that the health care sector and the consumer staples sector, which are the other two defensive sectors, have received very low weights after the heavy weight given to utilities. That’s a little strange and dampens my excitement about the fund. Geography I put together the following chart to demonstrate the allocations by country: (click to enlarge) The majority of these allocations are to developed countries, but there is a mix of emerging markets being included. I don’t mind using a mix like this as part of an international allocation, but it is interesting to see Japan being entirely absent from the country allocations when they have a fairly heavy weighting in many international portfolios. Volatility I ran a regression on the returns for DWX compared to the S&P 500 going all the way back to February of 2008. The annualized volatility for DWX was materially higher at 27.8% compared to 22.3% for the S&P 500. On top of much higher values for annualized volatility, the total return was a negative 21.0% compared to the S&P 500 being up 82%. I expect international allocations to have suffered quite materially relative to domestic equity, but the this is a long period in for a total return of negative 21%. Conclusion The allocations looked a little interesting as we got into the sector allocations, but the weaker allocations to two of the three defensive sectors was enough to give me cause for concern. The country allocation seemed interesting, but I didn’t see any problems that couldn’t be rectified by combining the fund with other funds that put heavier allocations into the missing markets such as Japan. The real problem came when I decided to look at the returns since 2008 and saw that despite a strong yield the fund has been struggling on total returns. International funds have generally had a rough go since the last recession but that is remarkably weak over a prolonged period. Scalper1 News
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