2 ETFs Hitting Billion Dollar AUM Mark This Month

The U.S. ETF industry has been gaining immense popularity over mutual funds or any other alternative investment fund thanks to its transparency, liquidity, tax effectiveness and cost efficiency. As per the data from ETFGI, the ETF industry reached to a record high of $1.76 trillion at the end of April with 1,577 products from 57 providers on three exchanges.      

Though the industry has gathered $34.9 billion in new capital since the start of the year through April, it is well below $65.6 billion in net inflows recorded in the same period a year ago. Equity products have been leading the way higher with net inflows of $18.3 billion, followed by $13.4 billion inflows in fixed income products. Commodity ETFs/ETPs were the biggest laggards with $1.4 billion of asset outflows.

Despite the fact that a downslide in momentum stocks and geopolitical risk in Russia are keeping stock market returns at check, most investors are still pouring their money into the equity ETFs on a flurry of increased mergers & acquisitions and an improving job market.

On the other hand, cautious investors prefer to invest in bond ETFs as yields have declined to much lower levels and the Fed has committed to keep short-term interest rates near zero levels for a considerable period of time to support the gradually improving economy.

Given mixed fundamentals in both equity and bond markets, a low interest rate environment and Fed tapering, investors are chasing higher income and looking for stability in their portfolios, making dividend paying products attractive investment opportunities.

As such, two ETFs (one from the equity and another from the bond space) yielding higher dividends have hit the $1 billion mark this month. Below, we have highlighted those in greater detail:
 
WisdomTree MidCap Dividend Fund (NYSE:DON)

This fund offers concentrated exposure to the mid cap segment of the broad U.S. dividend-paying market. It follows the WisdomTree MidCap Dividend Index, which is dividend weighted annually to reflect proportional share of cash dividend that each company is expected to pay in the coming year based on the most recently declared dividend per share.

The product was launched in June 2006 and topped $1 billion in AUM in early May. It charges 38 bps in annual fees from investors and trades in moderate volume of about 54,500 shares a day on average. Additionally, DON is the highest dividend payer in the U.S. mid cap space, yielding 2.31% annually.

Holding 391 stocks in its basket, the fund is nicely balanced across a number of securities, preventing concentration as each security holds less than 1.9% of DON. However, one-fourth of the fund’s portfolio is dominated by financials while utilities, consumer discretionary and industrials account for the double-digit exposure. The fund has added 4.3% in the year-to-date time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with Medium risk outlook.

Investors are embracing this product as mid-cap stocks are considered safer options and offer the best of both worlds – growth and stability – in portfolios. They have a potential to move higher than the large and small cap counterparts in turbulent times. Further, by honing in on the dividend paying stocks at this market cap level ensures higher income.

Peritus High Yield ETF (NYSE:HYLD)

This fund is actively managed and seeks to provide capital appreciation in addition to high yields. It offers the best value and least credit risk to investors in the high yield bond space by investing in corporates with a lower effective duration of 2.40 years. In terms of credit quality, HYLD focuses on low-investment grade bonds (B+ and lower) and holds about 77 securities.

The product is extremely spread out across each security, as no single bond accounts for more than 2% of assets. The ETF, initiated in December 2010, recently crossed $1 billion in AUM and trades in good volume of about 213,000 shares a day. Though the fund is a bit pricey charging 1.35% in expense ratio, it has proven itself a winner compared to other bond choices, gaining about 4.6% year-to-date.

Further, the ETF pays out a high annual dividend yield of about 7.46% per annum while the 30-day SEC yield is greater at 7.87%.

Though the fund has a bleak long-term outlook given its Zacks ETF Rank of 4 or ‘Sell’ rating with High risk outlook, it is benefiting from tumbling interest rates even with reduced Fed bond buying and this trend is likely continue in the short term. This is especially true as the product provides investors’ a cushion against the rising interest rates, which is expected in the second half of the next year. Further, HYLD yield offers a significant premium over that of Treasury bonds.

Original post