If you saw the values of some of the tech stocks in your portfolio plummet by 40% or more over the past few months, you are not alone. If you still believe in the long-term prospects of those stocks and nothing has materially changed from a company or industry perspective, there is no need to sell or make any rash decisions -- the market will bounce back.
That said, it's a good idea to offset those short-term losses with investments that perform differently in a given market cycle. So instead of adding more tech stocks to your portfolio, consider these two exchange-traded funds (ETFs) for balance. Both are focused on high dividends and are made up mostly of value stocks, which are a good hedge against declining tech stocks.
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1. WisdomTree U.S. High Dividend ETF
The WisdomTree U.S. High Dividend ETF (DHS 0.05%) has been among the top-performing ETFs on the market. Year to date, it has returned about 7%, and over the past 12 months, as of March 28, it has posted an 18% return. In a volatile time for technology stocks, it gives you positive returns as well as dividend income to be reinvested or pocketed.
WisdomTree has outperformed most of the ETFs in its class due to its unique methodology. It tracks its own index -- the WisdomTree U.S. High Dividend Index. The index is weighted by the dividend each component company is projected to pay in the coming year, based on the most recent dividend. The methodology also applies a composite risk score to each stock based on three factors: value, quality, and momentum. Stocks with a better composite risk score will see their weight increase, while those that rank poorly will have a reduction in weight.
NYSEMKT: DHS
Key Data Points
This results in a fund that invests in large, stable, high-quality companies that pay out good dividends. As of Feb. 28, financials represented 14.2% of the portfolio, followed by consumer staples (14.1%) and healthcare (12.7%). The fund has over 300 holdings, with ExxonMobil, Chevron, and Pfizer as the three largest.
It has been a solid long-term performer, with an average annual return of 10.9% over the past 10 years through March 28. Also, it pays out a monthly dividend, as opposed to quarterly. For March, the dividend was $0.13 per share at a yield of about 1.8%. Last year it paid out about $2.67 per share on an annual basis. The expense ratio is 0.38%.
2. iShares Core High Dividend ETF
Another top performer among dividend ETFs this year is the iShares Core High Dividend ETF (HDV 0.62%). This ETF is narrower in its scope, tracking the Morningstar Dividend Yield Focus Index, which includes only companies that pay high-yielding dividends that meet screens for quality and financial health. There are only 75 companies in this ETF, with ExxonMobil, Abbvie, and JPMorgan Chase as the three largest holdings.
Like the WisdomTree ETF, it comprises mostly large-cap value stocks, primarily those of stable, blue-chip companies. Healthcare (22.8%), energy (18%), and consumer staples (16.8%) are the three sectors that have the largest representation.
NYSEMKT: HDV
Key Data Points
The ETF is up about 6% YTD as of March 28, with a one-year total return of 19.4% through Feb. 28. It has a 10-year average annual return of 10.1% through Feb. 28. The performance numbers are quite similar to the WisdomTree ETF's results.
However, it does have a higher dividend payout. Its most recent quarterly dividend payout was $0.77 per share in the first quarter at a yield of 2.9%. Last year, the iShares fund paid out about $3.50 per share on an annual basis. This ETF also has a low 0.08% expense ratio.
So while there is no need to ditch your tech stocks because of a temporary market swoon, it's not a bad idea to add some ballast to your portfolio with these ETFs.
