ETF Edge

Global dividends are under pressure, but they still offer long-term opportunity: Strategist

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What could lie ahead for dividend ETFs as corporations cut payouts: Global X

Dividend ETFs are down in the dumps.

Companies have been slashing shareholder payouts as the coronavirus pandemic slows economic activity and weighs on an assortment of industries, which hasn't boded well for dividend-based exchange-traded funds.

Most popular dividend ETFs are underperforming the broader market year to date. The SPDR S&P Dividend ETF (SDY) is down nearly 19%, the iShares Select Dividend ETF (DVY) is down more than 25% and the SPDR Portfolio S&P 500 High Dividend ETF (SPYD) is down almost 32%.

One of the biggest decliners in 2020 has been the Global X SuperDividend ETF (SDIV), with a 42% loss.

"During the Covid-19 crisis, you've seen ... disparity between the performance of tech names, which has contributed to some of the great performance in disruptive technology funds, and more small-cap value names, which tend to share a lot of characteristics with high-dividend strategies," Jay Jacobs, head of research and strategy at Global X, told CNBC's "ETF Edge" on Monday.

While that disparity has benefited Global X's funds focused on cloud computing and robotics, SDIV has suffered, trading around $10 as of early Wednesday.

Its top holdings include B&G Foods, Diversified Gas & Oil, Kumba Iron Ore, Jasmine International and Sinopec.

"These small-cap value names have really struggled," Jacobs said. "They haven't enjoyed the same recovery that we've seen over the last month, and in addition, there [are] concerns around the world that with some of these emergency loans from governments, that they're going to require many companies to stop paying their dividends, at least for the time being."

But investors' appetite for income has persisted "for the better part of a decade" and likely isn't going away, he said.

"There's still a lot more that could be shaking out of this price for the next few months, but we don't see that ability to get income changing anytime soon," Jacobs said. "If anything, we have lower interest rates around the world now, especially for government bonds. And secondly, I think a lot of investors are concerned that … the market has already rallied. Where is there opportunity left? This is one of the areas where there's certainly more opportunity for a recovery in asset values because it has not participated in the rally that we've seen in tech names."

SDIV rose 2% in early Wednesday trading.

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