September ended up turning out a whole lot like August. It was another month for steep losses in the equity markets with not a safe haven to be found, even in the traditionally defensive utilities sector. Not only is the Fed continuing to aggressively raise rates, but we're starting to see some of the larger systemic consequences that can come with yields soaring in such a short period of time.
Dividend ETFs didn't provide a lot of comfort either. Dividend growers and high yielders did just a little bit better than the broader market, but many were still down 8-9% on the month. The selling was very broad-based in September and that included both stocks and bonds.
One trend that we did see emerge in September was the return of international stocks. They didn't necessarily outperform to any major degree, but they have been matching the performance of the S&P 500 despite the surging dollar. A strong greenback works against foreign assets, so the fact that they're keeping pace with U.S. stocks with this headwind suggests they've actually been performing better on a currency-adjusted basis.
That's why we see a lot of currency-hedged dividend ETFs showing up at the top of the list in September. Those that were able to eliminate exposure to the dollar were able to add around 4% to their monthly performance compared to their unhedged counterparts. Amazingly, the fund that topped this month's dividend ETF best performer list, the WisdomTree Japan Hedged Small Cap Equity ETF (DXJS), was the same one that topped the list in August! Last month, it was one of just two dividend ETFs (it's sister fund, the WisdomTree Japan Hedged Equity ETF (DXJ), was the other) to post a positive return. It wasn't quite as fortunate in September, but its comparatively strong -1% return beat the developed market equity averages by more than 8%!
Here's the list of the best performing dividend ETFs for September 2022.
Outside of DXJS and DXJ, the currency-hedged ETF list includes another trio from WisdomTree - the WisdomTree Europe Hedged Equity ETF (HEDJ), the WisdomTree International Hedged Quality Dividend Growth ETF (IHDG) and the WisdomTree Dynamic Currency Hedged International Equity ETF (DDWM). The latter can add or remove currency hedges depending on market conditions. In all, WisdomTree owns 7 of September's top 15 dividend ETF performers.
The Siren DIVCON Dividend Defender ETF (DFND) is a fund that greatly benefited from its long/short strategy. It maintains a 75% long position in companies it identifies as most likely to raise their dividends and a 25% short position in companies most likely to cut their dividends. Not surprisingly, the long/short nature of the portfolio means it's often on either the top or bottom performer list, but the fund has been able to outperform the S&P 500 by 3% year-to-date.
The USCF Dividend Income ETF (UDI) and the Freedom Day Dividend ETF (MBOX) are both actively-managed and use similar approaches. MBOX looks at things, such as dividend growth, dividend quality, positive momentum and operational advantage to create a final portfolio of 50 stocks. UDI also looks at similar fundamental characteristics, such as balance sheet quality and attractive valuations, but layers on an ESG screen as well.
Here's where we start getting into some of the more familiar dividend ETF names. The Schwab U.S. Dividend Equity ETF (SCHD), the Vanguard High Dividend Yield ETF (VYM), the WisdomTree U.S. Quality Dividend Growth ETF (DGRW) and the WisdomTree U.S. High Dividend ETF (DHS) all rate highly on my ongoing dividend ETF rankings and are some of the largest dividend ETFs in the space.
There are more international dividend ETFs down in the second 15, including the iShares International Dividend Growth ETF (IGRO) and the Vanguard International Dividend Appreciation ETF (VIGI). Both are foreign equity versions of two very popular and highly rated funds - the iShares Core Dividend Growth ETF (DGRO) and the Vanguard Dividend Appreciation ETF (VIG). Both target longer-term dividend growers (VIGI's consecutive growth requirement is a bit more lax than VIG's).