No, not that Financial Crisis but the one in my portfolio. Over the last quarter my investments in the financial sector stayed put at 10.8%, in spite of not buying any individual financial stocks. I didn't have to look far to find the problem. At the end of June I had the following ETFs and Closed-end Funds in my income portfolio:Alpine Total Dynamic Dividend Fund - 16.29% Yield - (AOD)
Alpine Total Dynamic Dividend Fund (the Fund) is a diversified, closed-end management investment company. The Fund has an investment objective to invest in equity securities that provide high current dividend income. The Fund also focuses on long-term growth of capital as a secondary investment objective.
% Financial: 19.04%
SPDR S&P Dividend - 5.02% Yield - (SDY)
The Fund seeks to replicate as closely as possible, before expenses, the price and yield of the S&P High Yield Dividend Aristocrats Index. The Fund uses a passive management strategy designed to track the price and yield performance of the Dividend Index.
% Financial: 33.97%
Vanguard Financials ETF - 4.08% Yield - (VFH)
The Fund seeks to track the performance of a benchmark index that measures the investment return of financial stocks; specifically the MSCI U.S. Investable Market Financials Index. This is an index of stocks of large-, mid-, and small-size U.S. companies within the financials sector.
% Financial: 97.93%
Vanguard Dividend Appreciation ETF - 2.02% Yield - (VIG)
The Fund seeks to track the performance of the Dividend Achievers Select Index that measures the investment return of common stocks of companies that have a record of increasing dividends over time.
% Financial: 12.68%
Vanguard REIT ETF - 5.38% Yield - (VNQ)
The Fund seeks to track the investment performance of the Morgan Stanley REIT Index by investing at least 98% of its assets in stocks issued by real estate investment trusts.
% Financial: 0.00%
Vanguard High Dividend Yield - 3.65% Yield - (VYM)
The Fund seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that are characterized by high dividend yield.
% Financial: 23.83%
As you can see all the ETFs and closed-end funds above, except VNQ, include heavy allocations in the financial sector. Since I am targeting no more than 10% investment in the financial sector, this presents a problem. So what's the solution? Here is what I am going to do:
- Increase my maximum allocation to the financial sector to 15%: As you can see from the above, virtually any income-based ETF or fund is going to be financial heavy. At 15% my overall weighting would be well below all the above except VIG and VNQ. I would not be comfortable exceeding a 15% weighting, but I am comfortable at that level.
- Put VFH "On The Shelf": At 97.93% financial, each purchase of VFH is the virtual equivalent of purchasing an individual financial stock. Thus, I will not make any new VFH purchases and hold my existing position as long as it performs as a good dividend investment.
- Put SDY "On The Shelf": SDY's 33.97% financial weighting puts pressure on my overall financial allocation each time I purchase it. Like VFH above, I will not make any new VFH purchases and hold my existing position as long as it performs as a good dividend investment.
- Put VYM "On The Shelf": At 23.83% financial weighting, VYM will be treated as SDY above for the same reasons.
(Photo: sanja gjenero)
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