2 ETFs to Diversify Your Portfolio During Current Market Turmoil

2 ETFs to Diversify Your Portfolio During Current Market Turmoil

U.S. stocks are in a bear market while inflation reached a 40-year high, so we looked at 2 ETFs to diversify your portfolio with.

An ETF (Exchange-Traded Fund) is a great way to diversify your portfolio, as the fund invests in a broad range of stocks for you. This gives investors exposure to stocks they may not have thought about, but that could be fantastic investment opportunities. It lowers your risk and workload, as you pay an expert or algorithm to make the trades on your behalf. 

Here, we discuss two great ETFs to help diversify your portfolio during the current market turmoil. 

iShares Select Dividend ETF

The iShares Select Dividend ETF (NASDAQ: DVY) aims to track the investment results of an index composed of relatively high dividend-paying US stocks. The fund consists of 99 equities with a minimum 5-year history of paying dividends, and currently has a net yield, after deducting expenses, of 3.27%. A rule of thumb for dividend yields is that 2-4% yields are preferred. 

The ETF tracks ten sectors, with the most extensive holdings being utilities (27.02%), financials (19.52%), and consumer staples (10.15%). The primary purpose of this fund is to generate a high dividend yield for investors looking to earn cash returns rather than capital gains (share price appreciation). The fund’s beta, which is currently 0.94, indicates that it is less risky than the overall market. However, share price increases are also likely to be lower. 

The fund was launched in late 2003 and has since averaged a return of 8.98% per annum. This has underperformed the benchmark (Dow Jones U.S. Select Dividend IndexSM) of 9.53% per annum, which is not a positive sign for investors. However, the ETF charges a low expense ratio of 0.38%, making it very cheap for price-conscious investors and lowering the impact on the fund’s total returns. 

Vanguard High Dividend Yield ETF

The Vanguard High Dividend Yield ETF (NYSEARCA: VYM) aims to track the investment results of the FTSE High Dividend Yield Index. This index measures the investment return of stocks characterized by above-average dividend yields. What constitutes an above-average yield regularly changes as stocks are liquid assets, and the index repeatedly conducts new calculations. It is a passively managed fund comprised of 443 equities with average annual revenue growth of 11% per annum over the past five years. The ETF’s net yield is currently at 2.72% — lower than the iShares Select Dividend ETF — but still in the valid range for dividend investments. 

The funds’ most extensive holdings by sector are financials (19.60%), healthcare (14.40%), consumer staples (13.40%), and industrials (10.10%). The relatively high holding of financial stocks may allow the ETF to benefit from higher interest rates, lessening the decline of other sectors in the fund. 

The ETF was launched in late 2006 and has since averaged a return of 8.55% per annum. This has underperformed the benchmark (FTSE High Dividend Yield Index) of 8.64% per annum, but to a lower extent than the iShares Select Dividend ETF. One advantage of this fund is the tiny total fund operating expense of 0.25% per annum. This low fee lets investors earn a significant proportion of the returns generated.

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