“The strategy looks at every stock’s correlation to 10-year yield,” Darby said.
Consequently, in periods of rising rates, FDRR is neutral to stocks compared to other dividend ETFs that may weaken, essentially doing well on rising days and holding up on down slides to help investors generate improved risk-adjusted returns over the long haul.
FDRR’s additional focus on dividend growers may also help the portfolio perform during the period ahead as dividend growth stocks typically do well in rising rate environments.
“Dividend-yielding stocks are a heterogeneous group, and lower-payout, faster-growing dividend payers have historically held up well in rising-rate environments. Remember, over the long term, dividend-paying stocks have offered compelling returns relative to non-dividend paying stocks, and have done so with lower volatility,” Fidelity analysts said in a recent research note.
For more information on dividend stocks, visit our dividend ETFs category.