Given the woes plaguing the global banking sector — among them the never-ending Greek drama and a U.S. mortgage market that refuses to improve — it’s not surprising to see investors fleeing financial stocks. The popular Financial Select Sector SPDR (NYSE:XLF) is down more than 15% in just the past three months alone. Aggressive traders have started to nibble a little at financial stocks, but most conservative investors are still steering clear.
This is particularly obvious by the recent popularity of the WisdomTree Dividend ex-Financials ETF (NYSE:DTN). Forbes reports that the ETF has seen inflows in the past week that have expanded its shares outstanding by nearly 4%.
Dividends are en vogue these days, and with good reason. After a decade in which investors have seen little in the way of capital gains, cash dividends ensure that they see a return that is not entirely dependent on the fickle whims of the market. Moreover, the companies that pay dividends tend to be less volatile than those that do not. And given the paltry yields on offer in the bond market, investors hardly can be blamed for running to high-dividend stocks instead.
WisdomTree’s explicit focus on the absence of financial stocks in DTN is telling. The 2008 meltdown was first and foremost a banking crisis, as is the festering European sovereign debt crisis. Investors want to know that the dividends they depend on are safe. Virtually all banks slashed their dividends during the 2008 crisis, and investors fear it will happen again.