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KBWD: Yield Curve Has Inverted, Stay Away From This ETF

Published Mon, 03 Jun 2019 10:51:56 -0400 on Seeking Alpha

ETF Overview
Invesco KBW High Dividend Yield Financial ETF (KBWD) focuses on small-cap high-dividend financial stocks in the U.S. The fund tracks KBW Nasdaq Financial Sector Dividend Yield Index. KBWD's portfolio is sensitive to interest rates. Nearly half of its portfolio is mortgage REITs which are much more vulnerable in an economic recession. Although it pays an 8.5%-yielding dividend, this dividend may be reduced in an economic downturn. Since the yield curve has inverted recently, we think investors should stay on the sideline and wait till a better entry point.

Data by YCharts
Fund Analysis
A portfolio of 40 small-cap financial stocks
KBWD's top 5 stocks represent about 20.2% of its total portfolio (see table below). Although not one stock represents over 5% of the entire portfolio, its entire portfolio is concentrated in only 40 stocks. These are small-cap stocks that tend to be more volatile than the broader market. Small-cap stocks are like small boats where large-cap stocks are like big boats on the water. Investors tend to like to stay on larger boats when there is a big wave coming such as an economic recession. Therefore, small-cap stocks can get sold off easily in an economic recession or when fear dominates the entire market.

Source: Morningstar
Financial sector will not do well in an economic recession
KBWD's portfolio of financial stocks makes it an interest rate sensitive ETF. Therefore, KBWD can perform well when the... Read more