NEW YORK ( TheStreet) -- Mohamed El-Erian has said that Europe is on the verge of a banking crisis. This is hardly a surprise as bad news for European, and UK banks has been playing out for years and has been getting worse for the last few months.
Readers of my articles at TheStreet and of my blog have probably grown weary of my droning on about how bad U.S. and European banks are. Operation twist will not help the U.S. banks as a flatter yield curve makes lending less profitable.
Anyone agreeing that most financial stocks stink can simply avoid those stocks or sector ETFs but not everyone is comfortable with individual stocks or narrow products. A user of broad-based funds using the SPDR S&P 500 Trust (SPY) or the iShares MSCI EAFE Index Fund (EFA) is going to get 13% and 22% respectively in financials. If financials continue to be the exact wrong place to be, then 13% and 22% are too much.
Fortunately for investors there are broad-based substitutes for these funds that exclude financial stocks. The WisdomTree Dividend ex-Financials (DTN) can replace SPY and the WisdomTree International Dividend ex-Financials (DOO) can replace EFA.The domestic-oriented DTN is obviously dividend weighted. The largest sectors are staples and utilities at 15% each, telecom at 10%, discretionary 9%, industrials and health care 8% each and energy at 7%. The WisdomTree Website reports a distribution yield of 3.04%. The trailing 12 months have actually been a little better but dividends from ETFs vary over time and the future dividend could be better or worse, there is no way to know. Avoiding financials has allowed DTN to outperform SPY by a noticeable amount over the last 12 months and year to date, 12% versus 6% and flat versus a decline of 6% DOO allocates 18% to telecom, 11% to utilities, 9% each to industrials and staples, 8% each to health care and energy and 7% each to materials, tech and discretionary. At the country level DOO is heaviest in Australia 17%, France 11% and Japan 10% before getting smaller from there. The telecom sector and Australia are each big dividend payers which accounts for their large exposures in the fund. The trailing dividend yield for DOO is 4.7% but the same caveat about future dividends applies.
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