Laggard #3: PowerShares KBW High Dividend Yield Financial Portfolio
Financial stocks are enjoying a broad-based recovery in 2013 — at least, that’s the impression you get from the performance of the six industries that comprise the financials sector of the S&P 500. According to Yardeni Research, all of them were up 20% or more through Sept. 26. It stands to reason that ETFs in this sector would be doing well, too.
And they are — with the exception of the PowerShares KBW High Dividend Yield Financial Portfolio (KBWD), which is up just 15% this year, trailing the entire sector by almost 800 basis points.
Aren’t dividends supposed to be an investor’s best friend? What’s going on?
Part of the problem has to do with the fund’s portfolio. Approximately 88% (60% small-cap and 28% mid-cap) of its holdings are invested in value stocks, with the rest in growth. So far in 2013, small-cap growth ETFs are handily beating small-cap value ones — this Seeking Alpha data point says that outperformance is approximately 800 basis points. Midcaps aren’t nearly as divided, with results between value and growth fairly similar year-to-date.
KBWD isn’t a bad fund, nor is its Q3 performance bad. It’s simply that growth stocks — especially small-caps — are simply more popular with investors. That might change occasionally, but historically, investors have usually been more inclined to own growth rather than value.
That permanently works against the fund despite its attractive 7.5% yield.