Monday, September 25, 2006

Claymore Zacks Yield Hog CVY

The Claymore/Zacks Yield Hog ETF (CVY) has accumulated $5 million in assets in its first week of trading, since September 21, 2006.

This the underlying Zacks Yield Hog Index replicates the strategy of an aggressive equity income investor. 50% or more of the the portfolio is made up of classical dividend stocks. While the remaining 50% is allocated between various other high yielding equities such as Master Limited Partnerships [MLPs], REITs, preferred stock and closed end funds. The funds benchmark index is the Dow Jones Select Dividend index which underlies the iShares (DVY) etf. Based on Zacks comissioned backtesting, the Yeild Hog index has the same risk profile as (DVY) but with a higher return. Claymore has prepared a small briefing book and the index components are available from the AMEX.

I think the best way to think about CVY is to imagine it as an equity income strategy wrapped up in single share. Its not so much useful for asset allocation as it is for strategy allocation. Now that the sector and index ETF space is fully populated, I expect that we will see more "strategic" ETFs that embody different strategies that can be used in isolation or mixed to create optimal portfolios.

4 Comments:

At September 25, 2006 3:21 PM, Anonymous WITY said...

"the Yeild Hog index has the same risk profile as (DVY) but with a higher return" - True, it has had a higher return when the market was down or sideways, and helped by a huge coincident REIT and MLP rally. But if equities take off and REITs as well as energy go cold, it will lag the DVY by a mile.

Sure, it is a one symbol that captures income. But it is not cheap, and has its downside.

 
At September 25, 2006 4:25 PM, Anonymous Market Participant said...

Well, I noted that result was taken from Zacks's own backtesting. Which is worth as much as you paid for it.

CVY isn't terribly expensive at 0.60%. Certainly it is cheaper than some ETFs that Powershares and First Trust have in the pipeline. Those ETFs plan to charge a 0.70% fee.

 
At September 25, 2006 6:08 PM, Anonymous Anonymous said...

I looked at their materials as I thought this could be a core holding.
What I saw in the portfolio, at first glance boil down to 5 points;
1)the reits 11% of the portfolio are a collection of mostly health care and broken down garbage like MLS and AFR,
2)the MLP's are only 9% of the portfolio where RIC's can have up to 25% without adverse tax effects,
3)I saw only 1 preferred stock at 1% of the portfolio, more of these would boost income, damp volitility and maybe get some qualified dividends,
4)around 9% is in closed end funds mostly covered call and emerging markets debt, so one is paying an expense for CVY and also the underlying expense of the CEF and
5)I haven't looked much at the stocks, although many are financials as to be expected, they put Kinder Morgan(KMI)in the fund. KMI is going private and they have raised the price once, somehow I doubt they will raise it again so gains potential here seems low.
I think I can do better with a combo of DVY, PID, ICF, TYG, BEP, and PFO that will cover the same bases and I think do better.

 
At September 25, 2006 8:39 PM, Anonymous Market Participant said...

I think CVY could be a core holding for high income folks. Of course you could do better, but overall its a good approximation for people who just want to own one stock and not worry about it.

Another thing to keep in mind is that as an index it is passive; however Zacks will refresh the index once a quarter and can update it more often as needed.

MLPs are limited to 25% of the portfolio, while CEFs are limited to 10%. REITs, Preferred Stock, and ADRs are limited to 20% each.

The REITS are a mix, but there are plenty of nice ones like O,RWT,FRT,CEI etc in the portfolio. I counted three preferred stocks in the portfolio; I imagine that liquidity concerns limit inclusion.

I would have no problem recommending something CVY for someone who wanted a high income portfolio, but did not want to fuss with it.

BTW, if you like closed end funds, check out GLV.

 

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