Invesco PowerShares, the Wheaton, Illinois-based ETF provider behind the popular S&P Low Volatility ETF (SPLV), has announced the launch of PowerShares S&P 500 High Dividend Portfolio ETF (SPHD), another factor-based fund that provides exposure to large- and mid-cap companies that have oversized dividend payouts and are less volatile than the broad market.
The fund tracks the S&P Low Volatility High Dividend Index, a benchmark of 50 stocks that identify high-yielding securities with low-levels of volatility. Targeted for income-seeking equity investors, the fund screens a high-yield basket of securities drawn from the S&P 500 universe.
The underlying index first selects 75 stocks from the S&P 500 index that have the highest dividend yield over the past 12 months with the number of stocks from each sector capped at 10. Then 50 stocks are selected from the group that have shown the least realized volatility based on the price returns data for the trailing 252 trading days. The weights of each of the 50 components are decided on their dividend yields.
According to the company, the underlying index had an average dividend yield of 4.5 percent at the end of third quarter, well above the broad bond benchmarks and other income focused securities. The fund is rebalanced and reconstituted twice a year, both in January and July.
The focus on dividends and low volatility has skewed the fund towards utilities, staples, financials and telecommunications. The portfolio is light on materials, consumer discretionary, technology and energy stocks.
The investment strategy also results in a value tilt as roughly half of the assets are allocated to large cap value stocks. Mid cap value stocks make up about one third of the total while large cap growth stocks manage to get only seven percent. Mid-cap growth stocks make up the remaining 12 percent.
SPHD has an annual expense ratio of 30 basis points and may be very well suited for the use with trend tracking once volume has increased and more historical data has been established.
With the global slowdown underway, dividend yielding equity ETFs may be the way to go. This past year, I have predominantly used DVY, which not only yields 3.5% but was extremely stable as market fluctuation hit mid-year.
As a result, DVY never triggered its trailing stop loss thereby avoiding at least one whipsaw signal. Time will tell if SPHD offers similar stability at a higher yield, and I will revisit this idea again in a few months.
Disclosure: No holdings