FFCM LLC, the Boston, MA-based investment advisor to QuantShares, recently rolled out its fifth exchange-traded fund that takes a unique long-short strategy in dividend investing. The newly launched QuantShares Hedged Dividend Income Fund (DIVA) takes refined approach that is likely to attract investors looking for dividend income.
The passively-managed DIVA tracks the INDXX Hedged Dividend Income Index, which was created in February 2013. The index aims to maximize capital appreciation and offer high current-yield while maintaining risk-profile similar to a corporate bond index.
To achieve its dividend income objective, the new fund selects 100 stocks from the 1000 largest US stocks that have a history of paying consistent or growing dividends and that generate high dividend yields. All the 100 stocks are weighted equally for optimal diversification.
In a departure from traditional long-only strategies, DIVA also shorts approximately 200 stocks that have little or no dividend history from the same universe of 1000 stocks. The fund is rebalanced every month in such a manner that the value of short positions is broadly half the value of the long bets. Maximum exposure for any sector is capped at 25 percent while industry weights are capped at 15 percent.
While shorting stocks hedges the fund’s downside risk, DIVA’s structure offers a transparent and tax-efficient platform that is well diversified.
DIVA pays dividends every month, an attractive feature for investors seeking regular income. The fund’s long positions include such Dow components as General Electric, Pfizer, McDonalds and Verizon. Short positions include Amazon, Google, Ebay and AIG.
DIVA has a net annual expense ratio of 0.99 percent.
Disclosure: No holdings