The security trend in 2022 has largely reversed this year as investors rush into tech stocks.
This can be seen in dividend ETF flows, which have fallen off a cliff in 2023 from a record high in 2022.
Popular dividend ETFs have lagged the broader stock market this year as large-cap technology stocks have surged.
Investors have largely abandoned dividend stocks this year.
Amid the 2022 bear market, investors have been flocking to dividend-paying stocks in hopes of having a buffer on their invested capital in the form of a dividend. the Federal Reserve began aggressively raising interest rates.
Dividend-paying companies are widely considered safer and more stable than their non-dividend-paying counterparts, and as the stock market plunged more than 20% last year, investors flocked to safe havens, and for a brief period at least, Value and dividend-oriented stocks outperformed the broader stock market in 2022 by falling less than the S&P500.
The strong demand is visible through collective inflows into dividend ETFs last year, which reached a record $62.1 billion. This follows a strong 2021, during which $41 billion was invested in dividend ETFs. In total, investors purchased more than $100 billion worth of dividend ETFs between 2021 and 2022.
That trend hit a wall this year as the security market largely reversed course as investors chased large-cap technology stocks on the rise. Only three mega-cap tech stocks pay a dividend: Apple, MicrosoftAnd Nvidiaand their dividend yield is so low that they are often not included in dividend ETFs.
So far in 2023, investors have purchased just $786.8 million worth of dividend ETFs, according to Bloomberg data, representing a 99% drop from last year’s record inflows. . Instead, investors have flocked to tech stocks amid an AI frenzy, with the Nasdaq 100 surging more than 50% this year.
Investors’ rejection of dividend ETFs this year is also due to their underperformance.
The popular Vanguard Dividend Appreciation ETF is up 9% year to date, less than half the S&P 500’s 20% gain. Meanwhile, the Schwab US Dividend Equity ETF and the iShares ETF Select Dividend are in negative territory.
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