‘Detective’ Finds 5 Growth and Income ETFs

03/13/2015 10:00 am EST

Focus: ETFs

Harry Domash

Publisher, DividendDetective and Winning Investing

Harry Domash, editor of Dividend Detective, has just developed a new model ETF portfolio designed for those seeking both income and growth. Here, he discusses the first five ETFs selected for the portfolio.

Steven Halpern: Our guest today is Harry Domash, an industry leading income specialist and editor of Dividend Detective.  How are you doing today, Harry?

Harry Domash:  I’m doing great.  It’s another sunny day here in Northern California.

Steven Halpern: Your newsletter is well known for uncovering the best opportunities for income investors, but you’ve just unveiled a new ETF portfolio for investors seeking both income and growth.  Can you expand on the reasoning before launching this new portfolio?

Harry Domash:  Yes. Well, dividend investing, by its nature, is very conservative and we have not been participating much in tech boom and the biopharma boom that’s been happening the last couple of years and so I was really looking for a method, a way that we could do that.  

I found there’s recently been some new ETFs started—by recently, I mean the last two years—ETFs started that have had enough track record so that we could consider them and construct a portfolio that would allow our investors to participate in where all the action is in the market these days.  

Steven Halpern: Let’s take a look at the holdings in the initial portfolio and one you focus on is pharmaceuticals. Could you tell us about this ETF idea?

Harry Domash:  Well, what we are using is the PowerShares Dynamic Pharmaceuticals ETF and, as you probably know, biotech and pharmaceuticals have been a really strong category and we expect that to continue through the next year or two and we looked for an ETF that are really focused on the US economy and this one—ticker (PJP)—does and it also has a good diversification in terms of company size.  

It has all the giant caps, it also has some smaller companies too, which allow investors to participate in companies that might have a new drug approved and really make a big difference in their outlook.  

It’s only been around since 2006 so it’s the most well-established of the ETFs actually that we put in there and it has returned, like last year it returned 28%, in 2013 it returned 35%, so I just thought it was a good choice.

Steven Halpern: As you alluded to earlier, you also like the outlook for technology. Could you tell us about the ETF that you have chosen for exposure to the technology sector?

Harry Domash: Yeah, it’s called the First Trust NASDAQ Technology Dividend ETF, that’s a mouthful.  Its ticker symbol is (TDIV) and it’s a relatively new ETF—most ETFs are new—and that was the problem in doing them.  

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This one started in 2013—it returned 31% in 2013 and 16% last year—and it’s got the names you want to be in.  

It’s got Apple (AAPL), it’s got Cisco Systems (CSCO), it’s got Intel (INTC), it’s got Microsoft (MSFT), it’s got Oracle (ORCL), it’s got Qualcomm (QCOM), Hewlett Packard (HWP). If you want to be in this sector, this is the best way to do it.

Steven Halpern: Now, you also highlight two ETFs that give you exposure to the large-cap growth sector, could you tell us a little about those?

Harry Domash:  Yeah, well, one of them; we have two as mentioned, they are both WisdomTree ETFs. The advantage of WisdomTree for dividend investors is WisdomTree ETFs pay monthly dividends, which a lot of dividend investors like.  

We have the WisdomTree Large Cap Dividend ETF (DLN), it covers all large-cap sectors and then the other one is WisdomTree X-Financials (DTN) which excludes financials from the portfolio.  

I did that because financials can be a difficult sector, it just depends on what’s happening with interest rates, and such, and so I think you need a choice where you are not exposed to financials.  

If interest rates rise as people expect later this year then financials will do okay but if they don’t, they could be a problem. That’s why I picked those two.

Steven Halpern:  Finally, you include an ETF that focuses on real estate investment trusts.  Could you explain?

Harry Domash: Yeah. You wouldn’t think, a lot of people aren’t aware of real estate investment trusts, or REITs, as they are called.  They had a really good year last year, and if you look, you know, a lot of people are concerned about rising interest rates and how are they going to affect dividend stocks.  

If you look historically, when interest rates have risen, real estate investment trusts that own property have done really well because the economy is good. Let me just back up and explain.  

With real estate investment trusts, we are talking about companies or organizations that own commercial property like apartment complexes, shopping centers, office buildings, warehouses, things like that.  

The same thing that drives interest rates up—which is a booming economy— works well for these kinds of companies because the rents go up and they usually raise their dividends and—if interest rates do rise and the economy takes off as people expect—it will be a very good year for real estate investment trusts.

Steven Halpern: Again, our guest today is Harry Domash, editor of Dividend Detective. Thank you for taking the time to join us today.

Harry Domash: Thanks for inviting me.

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