Counter More Rate Hikes and Increased Volatility with this ETF

Recent volatility is a reminder that the market still moves with the whims of investor sentiment when absorbing financial news. In a rate-sensitive environment such as now, if investors can get low volatility with high dividends, it’s a win-win — enter the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD).

From a macroeconomic perspective, recent payroll data came in lower than expected, portending to a cooling jobs market. It could be an early alarm for recessionary signals to pair inverting yield curves. However, it could also mean the U.S. Federal Reserve may be more hesitant to raise rates.

The primary volatility indicator, the CBOE Volatility Index or simply the VIX, has been seeing heightened activity the past month (up 13%) despite a fairly quiet 2023. Year-to-date, the VIX has fallen almost 30%, but investors could take it as the proverbial calm before the storm.VIX Chart

Given that notion, getting inherent volatility protection is still a must when searching for exchange traded funds (ETFs). A plus would be to get high dividend exposure as well in this high-rate environment, and SPHD does both.

High on Dividends, Low on Volatility

If investors are solely after dividends, then SPHD delivers with a 30-day SEC yield of 4.72%. The 12-month distribution rate comes in at 4.22%, appeasing monthly income seekers.

Per its fund description, SPHD seeks to track the the S&P 500® Low Volatility High Dividend Index. The index provider compiles, maintains, and calculates the underlying index, which is composed of 50 securities in the S&P 500® Index that have a history of high dividend yields as well as lower volatility.

To get a piece of SPHD, ETF investors are looking at an expense ratio of just 0.30%. To get volatility protection and high dividend exposure, this makes SPHD a relative bargain in a high inflation time where low costs are top of mind.

One of the notable characteristics of the fund that speaks to its low volatility characteristics is its skew towards value. That’s evident in the fund’s price-to-earnings ratio of 13 (as of June 30). This hints at companies offering value, given that a ratio of 20 to 25 is considered average.

Additionally, its market cap and style allocation explicitly state that over 70% of the fund tilts towards large-cap and mid-cap value — also a plus if volatility strikes. The fund is also well-balanced, as its primary holding, Altria Group, tops out at 3.34% of the fund’s assets, while the rest is spread over 50 other holdings (51 total).

For more fund-specific information and data, visit its product website.

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