An ETF That Emphasizes Risk-Adjusted Income

As is the case with most multi-asset ETFs, there is an element to interest rate sensitivity with FDIV. That is highlighted by the new ETF’s 31.6% combined weight to preferred stocks and high-yield bonds. Preferreds lose allure when rates rise because they must decline in value to make their yields attractive relative to Treasuries. Additionally, most preferred issues or perpetual or feature long durations, which exposes investors to rate risk. [Mind Rate Risk With Preferred ETFs]

FDIV offsets some of that interest rate risk with an almost 26% weight to dividend-paying common stocks, many of which hail from sectors that often prove durable when rates rise. A fair amount of FDIV’s common equity positions hail from the financial services, health care and industrial sectors, groups with penchants for being solid performers in the face of rising interest rates.

The new ETF, which already has $20.2 million in assets under management, charges 0.87% per year.

FDIV Top-10 Holdings

Table Courtesy: First Trust

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of EMB.