# Opinions on iShares New USA Dividend Fund XHD ?



## fatcat (Nov 11, 2009)

i ran across this the other day: XHD from iShares
it has some stellar dividend payers in it which complement canadian dividend funds since it has many sectors that aren't well represented in canada (like pharmaceuticals, food and beverage, personal products, software) 
the top 23 companies make up about 82% of the fund and are some of the most well known usa dividend payers around it yields almost 3% after expenses
mer is .30 which is pretty good for a dividend fund

i am concerned about the hedging but would welcome other opinions


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## avrex (Nov 14, 2010)

Hi fatcat,
My preference is not to hedge.

Therefore, if you are interested in this type of product, I would go with the original US,
iShares High Dividend ETF (HDV)

The Canadian version (XHD) has the exact same holdings as the US version (HDV). However, surprisingly the MER of HDV is slightly higher at 0.40%


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## My Own Advisor (Sep 24, 2012)

I'm with avrex, prefer not to hedge.

VYM is a consideration for you, looking for "high dividend" ETF. MER is next to nothing with VYM although you'll find with this one, the returns are not as good as VTI.

https://personal.vanguard.com/us/funds/snapshot?FundId=0923&FundIntExt=INT#tab=0

Top holdings include: XOM, MSFT, GE, T, JNJ, PG, KO, WMT....

VYM much more diversified than XHD, VYM owns over 400 companies. Yield is over 3.5%.


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## Belguy (May 24, 2010)

Which do you feel would be the better investment, HDV or DVY and why? I ask because I am currently holding DVY.

http://us.ishares.com/product_info/fund/overview/DVY.htm

Or, do you like VYM or would you just stick with VTI for your low fee, broad based U.S. holding?


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## My Own Advisor (Sep 24, 2012)

HDV doesn't have tons of diversification. The top-10 holdings make up 60% of this ETF. Might as well own T, PG, JNJ and a few others outright for the 0.40% MER.

DVY holds more dividend payers that aren't necessarily high-yield.

I like VTI because you get some yield, but you also get market-like returns for the minuscule fee of 0.06% and you own over 3,000 stocks. For the price (fees) and diversification in the U.S., not sure anything can beat it.


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## Sampson (Apr 3, 2009)

Overweighted and specialized in a niche investment style.

Not a broad-based index tracking fund, therefore could suffer from concentration risk and result in a performance lag when compared to a US Large-cap tracking index ETF.


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## doctrine (Sep 30, 2011)

It took me a while but I found the methodology for this ETF:
_
"The Morningstar Dividend Yield Focus Index is a portfolio of high quality and high yield US stocks screened for consistent records of dividend payments and the ability to sustain them in the future. The index consists of 75 stocks that are weighted in proportion to the total pool of dividends available to investor"_

Presumably, this means its weighted according to the dollar value of the dividend payments. That has resulted in a massive imbalance in the index. It's lowest holding is less than 0.2% of the top holding. The smallest 10 holdings combined are only 4% of the AT&T weightings. That means if the bottom 10 stocks were all star performers and doubled in size, the fund itself would increase by less than 1%. 

And is this really a 'High Dividend" fund with a 3.4% yield (minus 0.3% fee)?

DVY is even more unclear (The Dow Jones U.S. Select Dividend Index)

_The Index measures the performance of a selected group of equity securities issued by companies that have provided relatively high dividend yields on a consistent basis over time. The Index consists of 100 of the highest dividend-yielding securities (excluding real estate investment trusts (REITs) in the Dow Jones U.S. Index, a broad-based index representative of the total market for the United States equity securities. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index.
_


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## fatcat (Nov 11, 2009)

well, let me start by saying that what attracted me to it _was_ it's sector overweighting, partly because of the sectors themselves and partly because the top holdings are such stellar companies that will all be around in 10 years 

if you believe in the low-beta theory, you will like these top holdings

if you own XDV for example or even CDZ or ZDV you are getting the usual over-concentration in financials, energy, materials and utilities
i already own ZUT and am happy with it so i don't need utilities

XHD/HDV you are getting a concentration its true, but it's a concentration that complements nicely what canada doesn't offer: health care, consumer products, software/technology and 2 very solid div telecoms att and verizon 

DVY starts off with 30% in utilities and we can get great exposure to utilities in canada so that is out for me

i am thinking of the hedged version since i have an income stream in us dollars and want to limit my exposure to this currency

i guess i would like a clear idea of how much the hedging would drag the fund down, i have seen all kinds of estimates for the hedging cost
i have read enough of cc's and others ideas to know that hedging is not a desirable parameter in general

the top holdings are some great companies 
Company ---Yield---Allocation
AT&T INC.	5.14%	8.97
CHEVRON CORP.	3.28%	6.52
MICROSOFT CORP.	3.38%	6.35
JOHNSON & JOHNSON	3.45%	6.2
PFIZER INC.	3.71%	5.94
PROCTER & GAMBLE CO.	3.26%	5.5
VERIZON COMMUNICATIONS INC.	4.68%	5.29
PHILIP MORRIS INTERNATIONAL INC.	3.96%	4.98
MERCK & CO INC	4.06%	4.4
INTEL CORP.	4.22%	4.18
ALTRIA GROUP INC.	5.41%	3.12
CONOCOPHILLIPS	4.46%	2.97
MCDONALDS CORP.	3.40%	2.83
BRISTOL-MYERS SQUIBB CO.	4.21%	2.07
DUKE ENERGY CORP.	4.72%	1.99
ELI LILLY & CO.	3.94%	1.9
MONDELEZ INTERNATIONAL INC. CL A	1.95%	1.86
CENTURYLINK INC.	7.29%	1.69
SOUTHERN CO.	4.48%	1.58
E.I. DUPONT DE NEMOURS & CO.	3.80%	1.52
LOCKHEED MARTIN CORP.	4.92%	1.17
DOMINION RESOURCES INC. (VIRGINIA)	3.98%	1.13
KIMBERLY-CLARK CORP.	3.44%	1.05
averge yield ----- 4.14% (not weighted)	---- agrregate holding-- of these above----83.21

doctrine, considering the beta of these companies, this seems like a pretty decent dividend fund return to me for today's environment, if there are better i'd like to know .. i own CDZ and barely break 3%


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## Belguy (May 24, 2010)

For my own purposes, I think that I will convert my U.S. holdings to VTI and my international holdings to VXUS and be done with it.

Cheap and easy.:sleeping::sleeping::sleeping::sleeping:


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## doctrine (Sep 30, 2011)

I'm not saying there's a better dividend fund. There probably isn't. I just think it's probably better to own the top companies here directly, especially based on the constituents of the fund. It may be appropriate for a small investment, say under $10k total funds. Any more than that and you'd definitely be better off owning the companies directly. 

The good thing about a fund like this is if you are searching for some good dividend US paying stocks to own directly, you can just pick from these top holdings.


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## My Own Advisor (Sep 24, 2012)

@doctrine. Yup


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## fatcat (Nov 11, 2009)

doctrine, i get your point but you _just cannot_ build a portfolio of these payers *with* diversification for less than 100K and i am not talking that kind of money

trust me i like the idea of direct ownership and reglar dividends and have switched in that direction in canada for energy and financials and real estate and telecoms but still have CDZ and ZUT
i have decided on a mix of etf and direct ownership
i get your blog rss by the way

i'll give you 50K and you allocate among that group and give me good diversification, what would you buy ?


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## doctrine (Sep 30, 2011)

From this list, what you could do is buy the biggest dividend payer in each sector. To compare costs, with $50k, expenses in the fund would be $150 a year. On Questrade, that would be about 30 trades a year. Enough for the initial 10 positions, and you could just hold from there or do a couple of buys per quarter into the lowest performing stock with your dividends - easy enough.

The top 10 from each sector on this ETF is:

AT&T
Chevron
Microsoft
Johnson and Johnson
Proctor and Gamble
Phillip Morris
Intel
McDonalds
Duke Energy
Dupont

If you wanted more diversification, you could pick the top 2 from each sector. At $50k, it's still cost effective enough to buy 20 positions and 10 rebalances in the first year.

Now, I have uncovered another issue with this ETF - it is not all big dividend payers in the US. Some real big ones are missing, like Exxon-Mobil and Coca Cola, for example. So when does a "qualifying" company become "non-qualifying?" And why did they leave certain ones out? What companies have been removed and added over the years? This would take a lot more research.


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## fatcat (Nov 11, 2009)

doctrine, thanks for that ... i will stick to the etf
i just really do like the mix of companies and the simplicity of a single buy
the tradeoffs are worth if for me

still not sure about the hedged vs. unhedged
i have us dollar income and so if the CAD rises i want some kind of hedge against it

here is an excellent (though not easy to read) pdf that describes how they have constructed the index, roughly and fundamentally they are looking for companies that demonstrate sound financials and have high yield ... what's not to like about that ?: https://corporate.morningstar.com/us/documents/Indexes/ConstructionRulesDivYieldFocusIndex.pdf

i love the sector weightings which complement my canadian holdings very well, this is a low beta defensive portfolio which is right for me at this time

*Sector Weightings	*

*Cyclical 4.18 *
Basic Materials 2.00 
Consumer Cyclical 1.03 
Financial Services 1.14 
Real Estate
*Defensive 65.22*
Consumer Defensive 22.30
Healthcare 25.26
Utilities 17.65
*Sensitive 30.61*
Communication Services 17.02
Energy 4.46
Industrials 3.64
Technology 5.48




> *Sensitive Super Sector*
> 
> The Sensitive Super Sector is part of Morningstar's global equity classification structure and includes industries that ebb and flow with the overall economy, but not severely so. *Sensitive industries fall between the defensive and cyclical industries as they are not immune to a poor economy, but they also may not be as severely impacted by a poor economy as industries in the Cyclical Super Sector.* In general, the stocks in these industries have betas that are close to 1.



XHD, the canadian hedged version is paying 3.46% currently which is after expenses


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