Mr. Kettle, Meet Mr. Pot

I was amused to see that Morningstar has licensed a dividend index that First Trust will list as an ETF this week.

Morningstar often criticizes ETF for have too much concentration in the top ten. This new fund, according to this article, based on their index, has 62% in the top ten. Oops.

The article also quotes Morningstar talking about differentiation. OK, well here are the tickers, again according to the article, for the top five holdings; C, BAC, MO, VZ and JPM.

The top five of DVY include MO, BAC, PNC, DTE, and PNW. The top ten account for 25.86%

The top five for PEY are MRK, WM, T, Progress Energy and Fnb corp. The top ten account for 26.28% of the fund.

The top five for SDY are CAG, ED, Vectren, First Horizon Natl and MO. The top ten account for 28.23% of the fund.

After doing that study I did not change the comment above about differentiation but maybe I should have because the names are reasonably different. Given that the percentages of the top tens of the other dividend ETFs are all in the 20's, I have to wonder if the 62% quoted in the article might be incorrect.

I called Morningstar and someone there is checking on the 62%. If I get a call back I will post the answer.

If correct, I think the the new Morningstar ETF might correlate very closely to the two mega-cap ETFs; the iShares S+P 100 (OEF) and the Rydex Russell Top 50 (XLG) but its too early to tell.