NEW YORK (ETF Expert) --There are times when I like what an exchange-traded fund asset is offering the investment public... at least in theory. Yet, over time, an ETF may fall short on things like tracking error, performance, methodological changes, liquidity and provider commitment.
In the case of
ALPS Sector Dividend Dogs
, the relative newcomer's theoretical construct appears sound. More importantly, the early indications are positive for SDOG -- from "trade-ability" via the reasonable bid-ask spread to performance that compares favorably with
Vanguard High Dividend Yield
What is SDOG exactly? It is an ETF that endeavors to expand upon an exceptionally popular investment approach called, "Dogs of the Dow." Whereas the original encourages investors to select a number of the highest yielding Dow components annually (at the start of the year), SDOG invests in the five highest-yielding stocks in each of the
10 sectors. It equal weights the 50 constituents, rebalances quarterly and reconstitutes annually.
In theory and in practice, SDOG is more diversified than other dividend funds. Vanguard High Dividend Yield has roughly 20% in consumer staples and 13% in energy.
iShares High Dividend Equity
has 25% in health care and 18% in utilities. In contrast, SDOG typically has 10% allocated to each and every sector, and approximately 2% in each of the 50 stocks.
At this moment in time, SDOG appears it will provide a greater income stream. Annualized, it may distribute in the neighborhood of 4%, whereas VYM and HDV are closer to 3%.
The annual expense ratio of 0.40% for SDOG is reasonable, as the cost of ownership is the same as HDV. However, Vanguard still reigns supreme in the world of lowest cost indexing; VYM is a steal at 0.13%. Considering the likelihood that a buy-n-hold owner of SDOG could be forfeiting 0.27% on a compounding basis annually, an owner would need to determine that SDOG has significantly greater long-term potential.
SDOG has been a top dog among its competitors since its July 16 inception date. Then again, a 3 1/2 month time trial isn't much to go on.
Having grabbed $50 million in assets under management already, SDOG might become a mainstay at the dividend ETF table. I still prefer Vanguard High Dividend Yield for the lower-cost structure and ease of trade; that is, as an institutional money manager, I am able to enter and exit VYM with remarkable ease.
Discussed another way, an individual who chooses to buy-n-hold a dividend fund should consider SDOG. On the other hand, if you choose to stagger stop-limit loss orders to
protect against extreme downside risk, you should stick with a battle-tested fund like VYM.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.
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