The allure of high-octane large- and mega-cap growth stocks is undeniable. Investors’ devotion to the asset class has been rewarded with impressive returns. However, factors at the opposite end of the investing spectrum could be helpful to market participants in 2024. Those include defensive, low volatility stocks with impressive dividend yields. Enter the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD).
The $2.9 billion SPHD follows the S&P 500 Low Volatility High Dividend Index. This index is a gauge that’s home to 50 of the highest-yielding S&P 500 components with the lowest trailing 12-month volatility. A growth ETF this is not. In fact, about 70% of SPHD holdings are classified as value stocks. Conversely, less than 3% of SPHD holdings are tech stocks.
Defense Could Help SPHD this Year
At the sector level, SPHD allocates 34.11% of its weight to utilities and real estate stocks. That implies the ETF has some correlation to declining Treasury yields. If the Federal Reserve signal to investors that it plans to cut interest rates multiple times this year, SPHD could benefit.
The ETF has a 12-month distribution rate of 4.52% and pays a monthly dividend. So it could function as a higher return bond proxy for some investors. And it could be one that be positively levered to declining inflation.
“Core inflation should tail off toward 2.5%, with real GDP growth moderating to a below-trend 0.8%. Rate cuts, which will likely kick off around midyear, will likely end up somewhere between the market’s and Fed’s estimates with Treasury yields continuing their decline,” according to AllianceBernstein.
Any of those factors could bode well for SPHD. And if they arrive in unison, SPHD could be a compelling idea for equity income investors this year. Add to that, AllianceBernstein extolled a preference for quality growth and value stocks. The latter are represented in SPHD. The asset manager also highlighted two other factors that are right in the SPHD wheelhouse.
“Likewise, high-dividend stocks seem worth pursuing. Low-volatility stocks are also worth a look, given that valuations have trended higher and the upside potential for earnings growth is lower,” noted the firm.
SPHD could also benefit if midcap stocks rally this year because that segment accounts for almost 61% of the ETF’s roster. While SPHD has a concentrated lineup, single-stock risk is minimal, because none of its holdings exceed a weight of 3.72%.
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