Further aiding HDV in 2011 was the fund's ample exposure to defensive sectors. Utilities comprise nearly one-third of DVY's index, making it an attractive play for those looking for protection from market headwinds. In terms of overall safety, however, the fund pales in comparison to HDV. Names hailing from non-cyclicals including utilities, consumer goods, healthcare, and telecommunications dominate the younger fund's index, representing over 80% of its assets.
At the same time that the fund designates the largest percentages of its portfolio to safety, it also shields itself from weakness. Lagging market corners, such as financials and materials, are among the least represented in the fund's breakdown, together accounting for less than 2% of its assets. Comparatively, these two sectors make up more than 20% of DVY's index.
As we prepare to close the book on 2011 and look to the opening weeks of 2012, I do not foresee HDV giving up its lead. In the New Year, the challenges facing retail investors remain great; the European Union is still plagued with turmoil and questions continue to linger regarding the growth status of leading emerging growth engines like China. This type of cloudy forecast has and will continue to benefit HDV.
That is not to say that investors should abandon DVY. Rather, in the event that skies clear, this fund should be on the radar. During periods of duress, the elder product will likely sell off harder than HDV. These magnified downturns may present attractive buying opportunities in the event that market conditions improve.
With challenges on the horizon in 2012, investors need to maintain a level head. Whether you opt for DVY, SDY, or HDV, dividend-paying equity ETFs look like strong bets for the New Year.
Written by Don Dion in Williamstown, Mass.