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By Scott Burns | 03-24-2011 01:55 PM

ETF Investors Seeking Income, Inflation Protection

Morningstar's Scott Burns discusses investor demand for dividends, international TIPS, and deeper exposure to emerging-market consumers with State Street's Tony Rochte.

Scott Burns: Surveying the ETF investing landscape.

Hi, there! I am Scott Burns, Morningstar's director of ETF research.

Joining me today is Tony Rochte from the State Street Group. Tony is the director of the intermediary business with State Street.

Tony, thanks for being her.

Anthony Rochte: Great. Thanks, Scott.

Burns: When we look at the investing landscape, a lot of the themes that we hear from investors, that I hear from our subscribers, I'm sure you hear from your investors: I think number one right now is dividends. Dividends and income. What do you see out there right now that investors could be capitalizing on, maybe not, and just some other trends in that space?

Rochte: One of the things that we hear directly from our investors, be it financial advisor, be it institutional investors, they say, especially post 2008-2009, is they're looking for dividends. It's predictable; it's steady.

If you look at the Dow Jones Industrial Average back to 1926, almost a third of the total return, as you know, was attributable to dividends. So, more and more investors are almost rediscovering dividends.

In 2010, the third-fastest growing ETF in the industry was actually the SPDR Dividend ETF, symbol, SDY. It's a concentrated portfolio. It's a 60-stock portfolio, made up of names from the S&P 1500. What's interesting about SDY and the SPDR Dividend ETF is every single constituent has to have a dividend-paying history going back 25 years. So, sometimes individual names, as you know, are high-yielding simply because they are on the verge of bankruptcy.

Burns: Right.

Rochte: There is a reason. But this actually puts a quality screen in place and screens out any dividend that hasn't increased consistently over a quarter of a century, which makes it a very attractive ETF. Right now the yield is just north of 3%, and we're seeing a lot of demand for that.

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