With November arriving so does the best six-month period in which to own stocks, a time frame that has historically favored small-cap equities. Investors looking to engage with smaller stocks with less risk and higher income opportunities can consider the ProShares Russell 2000 Dividend Growers ETF (CBOE: SMDV).
SMDV, a dividend spin on the Russell 2000, the benchmark U.S. small-cap index, tracks the Russell 2000 Dividend Growth Index, which includes small-cap firms with dividend increase streaks of at least a decade. The ProShares ETF is one of the highest-rated funds in the small-cap value category.
“With central banks globally, including the Fed, leaning toward a dovish policy of easing interest rates, it may be time for investors to take a refreshed look at U.S. small cap equities,” according to Institutional Investor.
SMDV Can Diversify A Portfolio
Quality stocks, including those on SMDV’s roster, present an opportunity to diversify a portfolio. Specifically, investors should consider quality dividend growth stocks that typically exhibit, stable earnings, solid fundamentals, strong histories of profit and growth, commitment to shareholders and management team conviction in their businesses.
For example, in the period between 1987 through 2018, dividend growers within the Russell 3000 generated an annualized 13.1% return with an annualized volatility of 14.3%. In comparison, dividend non-changers returned 9.4% with a 16.8% volatility, dividend non-payers returned 6.9% at 23.8% volatility, and dividend cutters saw a 5.8% return with 21.9% volatility.
Beyond volatility reduction, SMDV is ideal for long-term investors considering small caps due to its emphasis on dividend growth.
Another advantage offered by SMDV is access to a universe where stock picking is notoriously difficult and liquidity, which the ETF solves for, can sometimes leave something to be desired.
“Another strength of ETFs is the market access they provide, according to 79% of institutional investors,” reports Institutional Investor. “In small caps in particular this is highly valued, as resources to conduct research on individual small companies can be limited.”
SMDV allocates nearly 42% of its combined weight to the utilities and industrial sectors while the financial services and consumer staples sectors combine for over 28% of the fund’s weight.
For more on core investing strategies, please visit our Core ETF Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.