I like to write about ETFs as I have the majority of my stock portfolio in ETFs I find them an easy and passive way for me to invest money and they don’t require much maintenance in terms of keeping track of stocks etc. In this article, we are looking at the WisdomTree US Equity Income UCITS ETF and my review related to this ETF.
An exchange-traded fund is represented as a stock in the stock market so by holding this specific stock you are holding a basket of stocks that correspond to an index (portfolio benchmark) that it is tracking.
This is more of an income ETF and its main goal is to track dividend-paying stocks from the United States. At the time of writing is paying out a dividend yield of around 4.4% and recently got boosted by the current market conditions. However, this ETF sounds like it is not only focused on only providing income but as well growing it over time so a yield on its own won't tell us the full story therefore we need to look further into it.
The current benchmark/portfolio
The index is rules-based, fundamentally weighted, and is comprised of the highest dividend-yielding US companies, risk-filtered using a composite risk score ("CRS") screening which is made up of two factors (quality and momentum) each carrying an equal weighting. The index excludes companies that do not meet WisdomTree’s ESG (environmental, social and governance) criteria. Overall, I think the general benchmark seems to be a good one.
The ETF currently holds about 350 stocks which provides enough diversification When it comes to geographical diversification, this ETF is only focused on US stocks.
When looking at ETFs, I find it crucial to look at the top 10 holdings to get a good feeling of the ETF, see if it fits my profile, and see if these would be companies I would invest in individually. In this case, the top 10 holdings are representing almost 44% of the total holdings which gives us a decent overview.
The top 10 holdings:
AbbVie Inc. - 6%
Exxon Mobil Corp- 6%
Chevron Corp - 6%
Pfizer Inc- 5%
Cisco Systems Inc - 5%
AT&T Inc - 4%
United Parcel Service Inc - 4%
International Business Machines Corp - 3%
Morgan Stanley- 3%
Gilead Sciences Inc - 3%
It is also important and exciting to look at sector diversification as it provides a good idea of how this fund is allocated through various sectors.
The top 5 sectors:
Financials - 24%
Energy - 15%
Health Care - 15%
Information Technology - 9%
Utilities - 8%
Conclusion:
When it comes to the individual holdings I have mixed feelings, on one hand, they don't seem too bad on the other hand I am missing others I would like to see instead in the top 10, However, looking at the sector diversification gives a better overview of the total composition of the ETF. For my taste, overall I find too much percentage of the fund is allocated to the financials, an allocation of 24% to a specific sector especially financials is a bit too high for my taste, however, the other sectors are allocated a bit more fairly.
Expense Ratio
When it comes to the expense ratio, the lower the better and I would generally like to see an expense ratio below 0.5%. Overall in Europe, I find the ETFs available are a bit more expensive than what is available in the United States. In this case, the ETF has an expense ratio of 0.29%, which for me is a bit high but still manageable, however, personally would have loved to see it lower.
Performance
Since this is a more dividend-oriented ETF I want to look at both the capital appreciation, as well as the dividend growth over the last couple of years. Purely looking at capital appreciation over the last 5 years this fund has increased by over 15%. When it comes to dividend payout, In 2018 this fund was paying out 0.53 euros per share and this last year it paid out 0.71 euros (33% increase). This is a decent increase considering the starting yield, and with such a high starting yield the question is, however, how will it perform in the future we have seen quite some good years and there is some over-reliance in the financial sector.
Pros
I find that there is a decent performance in terms of dividend growth considering the starting yield of the dividend.
The benchmark is something that is very interesting to me personally and I would like to see how it develops in the future.
The allocation to other sectors except for finance, may be considered decent.
Cons
Overallocation to the finance sector at 24% and would have liked to see some other companies as part of the top 10 holdings
Question mark on future performance since the index relies heavily on financials and how they are performing
Thirdly, the capital appreciation hasn't been stellar compared to some other ETFs.
Fourthly, as with all funds, it is not possible to choose the individual holdings so basically whether you like a stock or not in a fund, you are holding that stock indirectly, with this I want to say that you are buying the winners and losers and try to achieve a market return based on the index
Conclusion
I currently do not hold this ETF in my portfolio due to the overallocation to the financial sector itself. I already have another ETF that provides me with a similar profile albeit with a lower starting yield such as the Vanguard All-World High Dividend Yield UCITS ETF However, I am keeping this ETF on my watchlist for the future, as I would like to see how this benchmark will perform to assess whether it would make sense to start a position.
Basically, I have a strategic mix of ETFs and stocks to make up my portfolio so that it fits my goals. I want to tap into my stocks or dividends in over 20 years or so.
Disclaimer: I am not a financial advisor, this blog is centered around my opinion and should not be viewed as legal, professional, or financial advice.
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