ETF Edge - Diving into Dividend ETFs – Dividend Growth Plays & Future of Online Retail 11/21/22

Episode Date: November 21, 2022

CNBC’s Seema Mody spoke with Todd Rosenbluth, Head of Research at VettaFi, and Brian Giere, Senior Vice President at Amplify ETFs. They discussed popular alternative sources of income, as investors look to navigate a rocky landscape for equities and a volatile bond market – with a special focus on dividend growth ETFs. Plus, they dove into the holiday shopping season and debated over what the road ahead for online retail looks like in the face of high inflation. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ, supporting the innovators changing the world. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things exchanged traded funds, you're in the right place. Every week, we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I'm Sima Modi filling in for Bafasani. As investors look to navigate a rocky landscape for equities and

the volatile bond market. Today on the show, we'll discuss popular alternative sources of income with a special focus on dividend growth ETFs. Plus, the holiday shopping season is upon us. What does the road ahead for online retail look like in the face of high inflation? Here's my conversation with Todd Rosenblut, head of research at VETify, along with Brian Gary, senior vice president at Amplify ETFs. Let's kick things off at Brian. Dividend growth ETFs, Brian, have certainly had big, inflows this year but not all are created equal. What sets Devo apart from other dividend growth products on the market? Thanks, Diva. Thanks for having me on.

So Devo is a core equity income solution. It's actively managed. It's comprised of a core group of 20 to 25 of blue chip large cap dividend-paying stocks. An important point there too is these stocks have a history of dividend and earnings growth. But along with those companies that are well known, people are familiar with, the portfolio manager, which is capital wealth, and the product,

they write individual cover calls on individual stocks, and that's to help enhance the income and mitigate some of the volatility. So you have really two sources of income, And I think that's what's really resonating with investors this year, especially, as you have combined that dividend income along with the premium income from those cover call options. So we've seen a lot of interest in the form of inflows, but also performance. It's really outperform the S&P 500 as a benchmark year-to-date as well. So it kind of adds not only that income potential, but it adds that has that total

component as well to the portfolio. Okay. Makes sense. Todd, dividend growers seem like a sharefire bet in this environment of higher rates and confusion overfed policy. What do you like about this space right now? And what other products should investors look into? Well, at VETI, we're hearing from advisors on a regular basis.

We actually survey them to understand where they're looking for income. And they've consistently throughout 2022 cited both alternatives to traditional fixed income, including dividend income strategies, including covered call strategies. The Devo product that Brian's talking about is actually a combination of those two. So we are seeing strong interest in dividend ETFs like SCHD, which is the swab U.S. dividend ETF. This looks at, it's an index-based approach. It focuses on companies that have consistently raised their dividend and provides broad diversification.

We've seen interest in higher dividend yielding ETFs like VYM, which is the Vanguard High Dividend Yield ETF, but we've also seen interest in those covered call strategies. So Devo is one of them. JEPI is another one. This is a JPM-Morgan equity premium income ETF. It invests in companies that by the portfolio, manager is relatively low risk and then it adds an income component on top of it.

And it's been one of the 10 most popular ETFs, JEP, in 2022. So we're seeing a broad range of products. But what's also interesting to us is we surveyed advisors more recently to understand how they're viewing dividend strategies. And instead of looking at it from an income component that they've historically done throughout 2022 in the rising rate environment, they're now looking for more growth from these strategies. So we're We expect that VETify that we're going to see more interest in the dividend growth suite of products. So Wisdom Tree has the U.S. dividend growth, ETF, DGRW. Vanguard has one, which is Vanguard dividend depreciation, VIG.

We think we're going to see more interest in the growth side as opposed to the income side for dividend ETFs as we move into 2020. Got it. Growth over income. Very interesting. Let's move on though. Tis the season for shopping. We've heard retailers like Target, sound the alarm on holiday spending, forecasting a weaker holiday quarter ahead. An analysts are concerned. Another wave of cuts could be coming for retail earnings estimates, with inflation and higher gas prices causing consumers to be more selective about how and where they spend, many are expecting the convenience of online shopping to win out over brick and mortar. A strong showing from Walmart this earning season also suggesting Americans are more likely to

prioritize spending on staples like groceries over discretionary items like clothing. And Goldman Sachs recently put out a note saying consumers are looking for value this season and are willing to trade down to find it. Brian, I want to bring you into the conversation. Amplify does run the largest online retail ETF out there. The Amplify I Buy ETF. That's the ETF took a beating over the last two years as brick and mortar stores reopened. But what are you expecting this year? Yeah, no, it's as we come up to a big week this week, obviously, with Black Friday.

was Cyber Monday. You know, the consumer, I think, with inflation and interest rates and what's happening in the markets, there's obviously a concern. But when you look at the retail space overall, and then you slice it and look at online retail, we are expecting a continued outperformance or record growth in online specifically. I think there's going to be a desire for shoppers to go out to brick and mortar stores more this year with the pandemic kind of fading. So they're going to want to see the goods, touch, try them on, all that. But I think in the end, their desire for deals and their price consciousness is going to win out. And that's where we think the online story is going to continue to show strength. So I think a lot of the company,

in our i-buy-et-f have gotten caught up in some of the growth sell-off, especially this year, post-pandemic, post-2020. But the story holds, and I think the trend is there, and I think shoppers' habits have changed permanently from the pandemic. So you're going to see the volatility, the ups and downs, but I think ultimately you're going to see stores, companies really pivot to online brick and mortar, as you see, they're growing their online infrastructure and presence. And so we see it as a story that's going to be around for a long time. So we feel like it's positioned, like Todd was saying, some growth opportunities coming out of

this year with the focus on income, which I think will continue. But we believe that I buy is one of those that's poised, you know, for some continued, continued rally and growth opportunity as well. Speaking of growth opportunities, Todd, we've got Black Friday coming up in just a few days. What's your take on retail spending this holiday season? Well, we'll see. But, you know, what we tend to think of in the consumer space, consumer discretionary and the consumer discretionary ETF, X-L-Y, is the largest of those broad ETFs. People tend to think of the consumer being only tied to retail, and Amazon is the largest holding in the XLY ETF. But you really need to understand that Tesla is a top holding. It's the

second largest one. You've got companies like McDonald's and Starbucks that are more staple-oriented consumer discretionary companies in the restaurant space. So a more targeted way of getting exposure is XRT. That's the Spider-S&P retail ETF, an equally weighted, primarily brick and mortar oriented ETF holds companies like Macy's holds the gap, a broad range of these various retailers, not just only online, but primarily brick and mortar. This ETF XRT has seen strong inflows in the past month. We've seen more than $100 million flow into this ETF. It's now approaching again, $500 million has become larger than some of the online retail peers that are out there. But Brian talked about I Buy. I think it just would be prudent to just say that's a strong

ETF, it's equally weighted like the XRT ETF that I touched on. If you want a more concentrated approach into the heavy weights within that space, the pro shares online retail ETF, O NLN, is more concentrated in companies like Amazon and eBay. So two very interesting online retail oriented ETFs. They perform differently because they're constructed differently. So it goes back to understanding what's inside an ETF and not just buying the ETF, based on its ticker or its name.

That's all for ETF Edge today. I'm Sima Modi, filling in for Bob Pisani. Thank you for tuning in to our ETF Edge podcast. And remember, you can find all of our shows on our website, ETFedge.c.c.com. InvescoQQQQ believes new innovations create new opportunities. Become an agent of innovation. InvescoQQQQ, Invesco Distributors, Inc.