SPHD tracks the S&P 500 Low Volatility High Dividend Index, which is comprised of 50 stocks taken from the S&P 500 that have historically exhibited high dividend yields and low volatility. That along with the monthly dividend make the ETF something of a catch for conservative, income-seeking investors. [ETF Spotlight: Low Volatility and High Dividends]
Still, SPHD may not be a “free lunch” in the truest sense of the phrase. Low volatility ETFs took their lumps in 2013 as 10-year Treasury yields spiked, highlighting the rate sensitivity of the utilities and telecom sectors. Those sectors combine for 27.5% of SPHD’s weight. [Low Vol ETFs Take Their Lumps]
SPHD also has 16.5% weight to consumer staples, the second-most expensive sector in the S&P 500, but with a P/E of 16.6, the ETF itself is not too richly valued relative to U.S. large-caps. Eight of the ETF’s top-10 holdings are either staples or utilities stocks.
Consumer discretionary, industrials and technology, the top performing sectors when rates rise, represent a combined 19.3% of SPHD’s weight, helping to deflect some of the utilities exposure. And just because Treasury yields rise, that is not a guarantee of downside for SPHD. After all, the fund gained almost 14% last year.