Core Status Lifts a Dividend ETF

Exchange traded funds frequently change names and underlying indices, but the alteration that many investors relish is an expense ratio reduction.

That is the case with the iShares Core High Dividend ETF (NYSEArca: HDV), an ETF that has needed just three and a half years to ascend to $4.4 billion in assets under management.

In June 2014, iShares expanded its Core ETF series to 10 additional ETFs, doubling the total number. The possible appeal of these newer ETFs are – low expense ratios, ranging from 0.09% to 0.14% depending on the investment style, that will allow advisors to build well-diversified yet tactically-tilted portfolios. The new styles include regional specific international (Europe and Asia) and U.S. mortgage bonds and dividends. Meanwhile, some existing ETFs were renamed and lowered their expense ratios,” said S&P Capital IQ in a new research note.

HDV’s was one of those ETFs and with its addition to the iShares core suite came a dramatic fee reduction that took the ETF’s annual expense ratio to 0.12% from 0.4%. Probably not coincidentally, HDV has pulled in $474.1 million since June 10, the day iShares announced the expansion of the core lineup. Over the same period, the Vanguard Dividend Appreciation ETF (NYSEArca: VIG), the largest U.S. dividend ETF, has lost nearly $78 million in assets. [iShares Adds to Core Lineup]

HDV “is one of the lowest risk dividend ETFs in our universe, with a three-year beta (vs. S&P 500 Index) of just 0.48. HDV has relatively high exposure to traditionally defensive sectors, such as Consumer Staples (24% of assets), Health Care (19%), Utilities (12%) and Telecom Services (11%), and limited exposure to some economically sensitive sectors, such as Industrials (1%) and Consumer Discretionary (4%). This should not be a surprise since constituents that enter the index, and thus the iShares ETF, consistently have an above-average dividend yield and the defensive sectors tend to have many such candidates,” said S&P Capital IQ.

HDV has a trailing 12-month yield of 3.11%, or nearly 70 basis points above the Monday closing yield for 10-year U.S. Treasuries.

This year’s retrenchment in Treasury yields has encouraged investors to reconsider some high yield dividend ETFs, including some with either substantial staples or utilities exposure or both. That theme has bolstered HDV to a year-to-date gain of 9.2%. [Core Dividends With This ETF]