Close to 90 new exchange traded products have come to market this year, but one unique exchange traded fund that debuted in late 2014 is finding sudden success.
Investors are suddenly flocking to the Reality Shares DIVS ETF (NYSEArca: DIVY). For the seven days ended May 15, assets in DIVY surged 50% to nearly $27 million as investors are looking for new ways to damp volatility, according to Reality Shares data.
DIVY is not a traditional dividend ETF. Rather the fund looks to capture dividend growth via an array of strategies in an effort to generate long-term capital appreciation. DIVY’s holdings can include “listed option contracts, dividend swaps, futures and forwards on indexes of Large Cap Securities or exchange traded funds (“ETFs”) designed to track large cap securities indexes,” according to Reality Shares.
The actively managed ETF can purchase index options contracts in an effort to build a portfolio that “is designed to change based primarily on changes in the expected dividend values reflected in the option prices. These option combinations are designed to reflect expected dividend values and eliminate the Fund’s exposure to changes in the trading prices of the Large Cap Securities,” according to Reality Shares. [A New Dividend Growth ETF]
While DIVY is not a traditional dividend ETF, its strategy does help investors access the positive effects of a stock’s dividend growth. Isolating a company’s dividend growth rather than focusing on simple share price movements can produce solid long-term results.
DIVY does not capture actual dividend payments. The ETF’s holdings are usually comprised of call and put options on major indexes such as the S&P 500 and the Nasdaq-100.
Such strategies are not uncommon on professional trading desks. For example, professional traders use dividend swaps, which trade on over-the-counter derivatives markets, which consist of multiple fixed payments from one party to a counterparty.
As highlighted by the recent inflows to DIVY, investors are taking note of the ETF’s strategy and ability to mitigate volatility.
“Another big driver is simply increased visibility. Investors have responded very favorably when they hear about DIVY, so we have been doing everything we can to get in front of them,” said Reality Shares CFO Tom Trivella in an email exchange with ETF Trends. “Those flows have increased our daily volume almost 10-fold and pulled some investors off the sidelines and created a virtuous circle for us. We think we can sustain those gains as more investors learn about DIVY and its truly unique advantage.”
Reality Shares DIVS ETF
