Investors love high dividends. They also love minimal volatility. Those concepts come together in the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD).
SPHD seeks to track the investment results (before fees and expenses) of the S&P 500® Low Volatility High Dividend Index (the “underlying index”). The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index.
The index provider compiles, maintains, and calculates the underlying index, which is composed of 50 securities in the S&P 500® Index that historically have provided high dividend yields with lower volatility. To get a piece of SPHD, ETF investors are looking at a reasonable net expense ratio of 0.30%.
Low-volatility factor investments work on the idea that the funds can cushion against market turns, limiting drawdowns that investors experience while providing upside potential. Consequently, the low- or min-vol strategies may produce better risk-adjusted returns over the long haul, all backed by extensive academic research.
How SPHD Is Fitting In to the Investment Landscape
One of the primary objectives of low volatility ETFs such as SPHD isn’t to capture all of a bull market’s upside, but rather to capture less downside when markets swoon.
SPHD also sports a value tilt that’s particularly meaningful in the current market setting.
As income-minded investors look for ways to bolster returns in a low-rate environment, various exchange traded funds can rise to the challenge.
Exposure to the value factor could be in play following rotation away from high growth to cheaper cyclical sectors. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales).
While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain-priced compared with their competitors. Value fans believe this time may be different for value stocks, pointing to improving investment sentiment measures, abating fears of a recession, rebounding corporate profits, and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years, as the growth/value gap is as wide as it’s been in decades.
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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.