If there has been one common theme for investors during the last few years, it has to be the hunt for big dividends. As the Federal Reserve has kept interest rates in the basement, yields on many traditional income products — CDs, money markets and bonds — haven’t exactly been great. That has pushed many investors into uncharted territories to find significant yield.
But some of these asset classes can be a tad difficult to get a handle on as far as individual stocks are concerned. As a result, dividend ETFs focusing on these classes have become an investment of choice.
And leading the way has been fund sponsor Global X and its line of “SuperDividend” ETFs.
With two recent launches, Global X has expanded on its line and could give investors an interesting edge in two different and distinct asset classes and market sectors: emerging markets and REITs.
New Dividend ETFs Build on an ETF Franchise
Global X’s foray into the high-yielding world started a few years ago. Its SuperDividend ETF (NYSEARCA:SDIV) was originally designed to provide investors exposure to high-yielding securities across the globe. SDIV has proved quite popular, and investors have plowed just over $1 billion into the fund. Its sister fund, the Global X SuperDividend US ETF (NYSEARCA:DIV) — which only focuses on the United States — has also amassed quite a few assets, as has the Global X SuperIncome Preferred ETF (NYSEARCA:SPFF).
Given the success of the line, Global X has expanded its SuperDividend concept to two areas of the market — one known for its dividend prowess, and the other not so much.
Like their predecessor ETFs, the Global X SuperDividend Emerging Markets ETF (NYSEARCA:SDEM) and the Global X SuperDividend REIT ETF (NASDAQ:SRET) are designed to provide exposure to high-dividend payers. However, they are the first ETFs in the line to focus on specific geographies and asset-class type.
SDEM tracks the Indxx SuperDividend Emerging Markets Index, which provides access to 50 of the highest-yielding equities in the emerging markets. The ETF’s underlying index requires that its holdings must have paid dividends for each of the last two years. It pulls these stocks from a multitude of emerging markets. These include standard emerging markets fare, such as Brazil and China, as well more exotic locales, including Qatar, the Czech Republic and Chile. However, the BRIC countries — as well as financial and utility stocks — do make up the bulk of the ETF’s assets and holdings.
The Global X SuperDividend Emerging Markets ETF promises to pay a monthly dividend and charges 0.65% — or $65 per $10,000 invested — in expenses.
Like the rest of the SuperDividend suite, SRET focuses on high-yielding securities — in this case, real estate. This ETF tracks the Solactive Global SuperDividend REIT Index, which was created for the fund and holds the highest-yielding REITs from across the globe.
SRET initially screens for the 60 highest-yielding REITs, then chooses the 30 that have exhibited the lowest volatility over the last year. That creates a portfolio of REITs that pay some serious income, but it shouldn’t move around or be prone to large dips in the short term. Top holdings for SRET include Columbia Property Trust Inc (NYSE:CXP) and Novion Property Group.
The REIT ETF will charge 0.58% in expenses, and like SDEM, it will pay a monthly dividend.
How the Two Dividend ETFs Stack Up
Both SDEM and SRET have the potential to add substantial income to your portfolio, but that doesn’t make them outright buys. Ignoring the fact that the Fed has basically telegraphed that it plans to raise rates this year — which would hurt riskier high-dividend assets — the two ETFs do have a few warts.
For SRET, those warts include a hefty dose of concentration risk. The United States makes up about 77% of the fund’s assets, and only four nations are represented — that’s not very “global.” The REIT tax structure is quickly becoming a worldwide phenomenon, covering a diversity of places, including France, Japan and Malaysia. None of these are represented in SRET.
Secondly, about half of the fund’s holdings are in mortgage REITs. That makes sense, considering the fund is focusing on high-yielding real estate firms. However, mREITs aren’t exactly risk-free, and they are completely different from traditional property owners. If you’re looking for a safer real estate play, it might be better just to go with the SPDR Dow Jones Global Real Estate ETF (NYSEARCA:RWO) or a similar dividend ETF that excludes mREITs.
For SDEM, the problem is expenses. As interest in emerging markets has exploded, there is now a multitude of dividend ETFs that focus solely on developing economies. All of them charge a lot less than SDEM for essentially the same thing. For example, the iShares Emerging Markets Dividend ETF (NYSEARCA:DVYE) charges only 0.49% and still yields 4.4%. DVYE is a fairly concentrated portfolio, and I’m not sure how much more SDEM is going to yield. Over time, expenses matter and lower-cost options fare better.
Realistically, Global X will most likely have another two hits on its hands; the monthly payout alone will be enough to sway investors.
And there is nothing inherently wrong with SDEM and SRET, but you should consider some of the more established offerings in their respective spaces before pulling the trigger.
Aaron Levitt is a SABEW investment journalist and analyst living in State College, Pennsylvania. As of this writing, he did not hold a position in any of the aforementioned securities.
