Role of ETFs in a LTBH portfolio

[BrummieDave]

I'm keen to gather views on the above, particularity GBDV and UKDV. Both have attractive yields and an element of logic in their stock selection (managed dividends policy of increasing or stable dividends for at least 10 consecutive years) but there's always the risk of buying on the way up and selling on the way down etc. Costs are relatively low compared to ITs, but there's no opportunity for gearing etc.

So compared say, to Equity Income ITs, what views does anyone have on the merits of ETFs in a LTBH equity based high yield income strategy?

[tjh290633]

Why not ask on the Passive Investing board, where ETFs are discussed?

TJH

[BrummieDave]

Because the heading for this board includes the words "High yield strategies -general" with a sub-heading of "Practical discussions about equity High-Yield Portfolios (HYP) for income".

My question isn't about specific ETFs, it's requesting views, in order to stimulate a practical discussion, on the use of equity ETFs within a general income strategy, thus falling into the remit of this board IMHO.

[tjh290633]

The only one that I am familiar with, as a pseudo-HYP, is IUKD. That was initially a disaster as it was concentrated in financials.

Insufficient diversification was its problem. They have changed tack when it changed managers, from what I recall.

TJH

[langley59]

I have held a number of the SPDR ETFs since 2014 as long term passive income producing assets alongside HYP shares and various other types of asset as I like the dividend aristocrat methodology. GBDV, the global dividend aristocrat ETF, has performed well and I have no reason to change it, yield on cost 4.23% in 2017 with a nice capital gain. Whilst lower yielding the regional ones have fared pretty well, especially PADV (Pan Asia) and UDVD (US). The one disappointment is the UK one UKDV which shows me a capital loss at the moment and has underperformed the ishares ISF ETF which I also hold, both on an income and capital basis. UKDV only holds 30 shares and it has had some bad ones like CLLN, I would not recommend it.

In conclusion I think there is a place for ETFs in a long term buy and hold for income portfolio alongside investment trusts, HYP shares and bonds.

[daveh]

I use ETFs in my HYP for foreign shares. I have EMDV (Blackrock) for emerging markets and IDVY and IAPD (State Street Ishares) for Europe and Asia Pacific. All three are supposed to select high yielding shares from their relevant geographical areas that are paying a sustainable dividend. I've looked at the income ETFs in the same series for US shares but the yield has always been too low whenever I've looked - I want the yield to at least match the UK market yield.

Performance has been variable
IDVY held since Jan 2015 IRR of 15.29%pa including cash dividends . My cash dividends have increased year on year, but I haven't checked the actual payments. No new money added since Sept 2015 so looks good on the rising dividends front.

IAPD held since June 2016, IRR of 9.39%pa including cash dividends.

EMDV held since Oct 2012 and new money added every year upto Jan 16. IRR of 5.14% pa including cash dividends. The dividends have not been growing, but falling per share, which this year showed up in cash terms as no new money was added.

So Europe and Asia pacific have given good capital and dividend growth, emerging markets have been no better than OK and dividends have been falling. I'm not buying EMDV at the moment, but if I want more emerging markets exposure may look at the Ishares version of EMDV (which I think is SEDY) to see how it has performed in dividend terms.

[shawsdale]

On emerging market ETFs: I've had good capital growth (just under 20% in 12 months) from DGSE (WisdomTree Emerging Market Small Cap Dividend) certainly compared to the OEIC I transferred out of (Newton Emerging Income) in late 2016.
The dividend yield actually received thus far has been a little below 3%.
I was looking for an emerging market equivalent of the UK income funds (e.g. Chelverton) with a small cap/yield tilt.

Worth noting that DGSE 's top geographical weights are Taiwan (25%) and China (16%), with top sector weight of 18% in IT.