DNP Select Income Fund Vs. S&P 500 Index Fund

Stock-Market-Index
Source: Fool.com

In the search for better stock performance from my own personal portfolio, I decided to research more into this income fund. The reason for my interest was due to a colleague of mine at work who recently recommended me a fund called DNP Select Income Fund (NYSE:DNP). His investment thesis into DNP was due to the fund providing monthly income at a very little cost. He liked the fund so much that he invested bi-weekly through his 401k plan. This sparked my interest in researching this fund and see if it could be a better investment than an investment in the Vanguard S&P 500 ETF (NYSEARCA:VOO).

DNP Select Income Fund

To make an assessment of the two funds, I went on Schwab website to research about DNP and VOO in more depth. According to Schwab, DNP Select Income Fund is a close-ended investment company that focuses investing in various sectors within the utilities space, while providing long-term growth of income. This fund has been around since January 1987. Below is a summary of the fund information.

Source: Charles Schwab & Co., Inc

From the Fund Profile, DNP Select Income Fund’s total holdings currently stand at 118. The top 10 holdings within this fund are made up of mostly energy companies and the top holdings take up 39.6% of the entire total assets. DNP top 10 holdings can be found in the figure below.

Source: Charles Schwab & Co., Inc

DNP is also actively managed to follow the U.S Utilities indexes. Since it is actively managed, the net expense ratio is higher than those of passively managed funds such as the Vanguard S&P 500 Index Fund ETF. The key information from DNP’s fund profile I found was the annual report net expense ratio which was 1.03%. This will be a key information to use to assess the overall performance against other funds. The second information I found from researching DNP was the performance track record for the last 10 years. Below is the fund’s overall performance growth since 2006 with a $10,000 initial investment.

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Slick Investing – Do Not Buy At These Levels

Wall Street Sign Manhattan, New York, New York, USA

Source: Market-Barometer.com

The U. S stock market has been on fire these past few weeks even after the results of the Brexit and the continuation of the slow growth seen in the global markets. While it was great for all investors who had their investment in the stock market, from a contrarian point of view, the recent rise in the stock market was concerning. Every investors’ goal should be to make money in the stock market. That is why we invest in the first place, but is now the right now to jump into U.S stock market? This article will provide justification and rationale on why average investor should not buy into the market at these levels.

First, we look at the growth rate of companies within the U.S. Below showed the U.S GDP Growth Rate for the past 10 years according to Trading Economics.

Source: tradingeconomics.com

What this showed was that the growth of the U.S has been steady at around 6% to -2% growth rate for the past 6 years. The only time the U.S growth rate was below -2% was in 2009. While many great financial gurus out there preach that you cannot time the stock market, Warren Buffett has said repeatedly that an investor should not be jumping into the stock market unless it looks attractive. He said, “the stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch”. At current market levels, the S&P500(SPY) is positive 4.21% since beginning of the year while the Dow Jones Industrial Average (DIA) is positive 4.14% for the year. Plain and simple, this is not a buyer market, it’s a seller market. Now sure, there are bargain out there such as Wells Fargo (WFC), Warren Buffett’s favorite holding, but we do not know the true impact of Brexit will have on Wells Fargo profitability and operation. It’s selling at a discount for a reason. Now, long term investor can look at this as an investment opportunity and look to buy Wells Fargo. But for average investor who do not have time follow each individual companies and want to invest safely in an U.S stock market index fund, the yearly performance and the U.S recent growth rate trend showed that now is not a time to buy. In hindsight, the time to buy was during 2008 when GPD dropped to -6% but many investor did not see that during that time. What we can do is to be at least better educated and prepared for when the next opportunity is presented to us.

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