After the recent market swings, many are wary of volatility ahead. Nevertheless, investors who still want high dividends but are also concerned about ongoing risks may turn to low-volatility, high dividend ETF strategies.
“Investors can buy ETFs to get income from dividends, (often above what they could generate from individual stock picking), risk management for market volatility (potential for smoother returns with less downside risk) and long-term equity appreciation (if the stocks meet historical expectations),” writes Rick Genoni, managing director and head of ETF product management at Legg Mason, for InvestmentNews.
After a three-decade long decline in interest rates, we are still seeing historically low yields in traditional fixed-income assets, and bonds will continue to be pressured as interest rates rises.
However, the old income-generating assets, like Treasuries and utilities, may no longer adequately meet investor’s growing income needs. On the other hand, many are loath to take on riskier investments as volatility remain a fresh scar.
Consequently, Genoni argues that investors can turn to ETF options that deliver dependable income without carrying to much risk, such as high-dividend, low-volatility ETFs.
“Neither is new to the scene: Dividend funds are among the fastest growing in the smart beta space, while low volatility funds have become the second-largest attractor of assets under management for the three-year period ended Sept. 30,” Genoni said. “They are designed to address investor needs for income-generating assets with the potential for growth above inflation, combined with lower volatility and improved diversification.”