Not all that glitter is gold, and it is a good time to sell the glitter and buy something better instead. ETFs like the Invesco KBW High Dividend Yield Financial ETF (NASDAQ:KBWD), Global X NASDAQ 100 Covered Call ETF (NASDAQ:QYLD), and Global X SuperDividend US ETF (NYSEARCA:DIV) are worth dumping before the market turns on them. There are clear indications of that happening.
Doing so before May is a smart idea, as the market has historically underperformed in the summer before outperforming in October. This does not hold true every year, but it has been true often enough that you should take it into account when rebalancing your portfolio.
Before we look into why exactly you should dump the below ETFs, I will still make sure to hold dividend ETFs in your portfolio. Selling your entire portfolio in May to avoid supposed losses, only to buy back into the same names later on, is a sure way to reduce your overall gains. What you should do instead is pull out of weak ETFs and buy into stronger ones that can do well year-round.
Invesco KBW High Dividend Yield Financial ETF (KBWD)
This ETF invests in U.S. financial companies that have “competitive” dividend yields. It gets you a double-digit yield of 13.23% with a monthly distribution, and that’s often enough to pull in many investors. There’s of course a catch with a yield that high. You’re not only paying an unbelievable expense ratio of 5.39%, but getting into a weak sector.
At that point, you’re better off buying even the most aggressive covered call ETF.
Besides, you do not want significant financial exposure right now. KBWD has holdings in multiple BDC companies that are highly exposed to private credit and lenders to AI startups. AI is a good thing when you are buying companies on the receiving end of demand, like Nvidia (NASDAQ:NVDA | NVDA Price Prediction). But if you are buying KBWD, you’re taking on the risk of AI startups.
The only time I will buy KBWD is if you are bottom fishing after a major banking crisis. Right now, I don’t see any rationale for holding this ETF.
Global X NASDAQ 100 Covered Call ETF (QYLD)
Covered-call ETFs have been popping up like mushrooms, and these are genuinely good if you are a retiree with a handful of years left. For everyone else, you need to be extremely selective about which ones you want in your portfolio. QYLD simply doesn’t fit the bill, even for retirees. GPIQ does it better.
And if you’re not a retiree, just buy JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) instead. It comes with a lot more safety for an 8.3% yield and a 0.35% expense ratio. Sacrificing that 3% in yield will pay off in spades during a downturn, because JEPI’s tech exposure is less than 15%.
QYLD is only worth buying if yield is the only thing you want and you want it now, but even then, there are better options that can do this. The NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI) gives you a 13.9% yield with a 0.68% expense ratio.
Global X SuperDividend US ETF (DIV)
DIV wouldn’t have been too bad a play back when interest rate cuts looked certain. If interest rates were tumbling down to 2%, an ETF yielding you 6.66% through passive equity holdings would’ve definitely given you a solid outcome.
The outlook is much murkier now, and some investors think we could actually get a rate hike if oil prices hold and drive up inflation. Fed Chair Jerome Powell has also stated that he has “no intention” of stepping down when his term ends in mid-May and is waiting for the Department of Justice’s investigation to conclude. Thus, this makes it even less likely that you’re going to see significant rate cuts.
On that note, chasing this high-yield perpetual underperformer even for a few months is not worth it. You’ll find some very solid ETFs even if you sacrifice just 1-2% in yield.
DIV’s expense ratio is 0.45%, and the only two good attributes are that it pays monthly and holds real estate and energy stocks in good quantities.
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