These days, the combination of income and reduced volatility is all the more alluring. The Legg Mason Low-Volatility High-Dividend ETF (NASDAQ: LVHD) is one ETF that helps investors net both factors under one umbrella.
The low volatility high dividend ETF should help investors who are seeking new sources of yield in a changing market environment. The funds focus on companies with relatively high yield and low price and earnings volatility, and the funds also target profitable companies.
LVHD “is constructed of the highest-scoring securities subject to concentration limits: no individual component of the Index will exceed 2.5 percent, no individual sector (as defined by QS) will exceed 25 percent, and real estate investment trust (“REIT”) components as a whole will not exceed 15 percent. The number of component securities in the Index is anticipated to range from 50 to 100,” according to Legg Mason.
LVHD’s strategy has proven to help investors capture growing markets while limiting drawdowns during periods of increased volatility to generate improved risk-adjusted returns over the long haul.
“LVHD is generating negative returns this year, but it is performing less poorly than the S&P 500. The fund tracks the QS Low Volatility High Dividend Index and the has some avenues for avoiding dividend offenders, namely screening for profitable companies with high but sustainable yields,” reports InvestorPlace.
The low vol/dividend strategy can act as an alternative to fixed-income assets as the three-decade-long bull rally in bonds comes to an end. Money managers may find it harder to hit the required 60/40 stock/bond returns of yesteryear, but a low volatility and high dividend strategy may help fill in the gap.
LVHD’s profitability screen filters stocks that have been profitable over the last four quarters and are projected to remain profitable over the next four quarters, so companies will have the earnings power to support their dividends.
High dividend-paying companies are typically associated with heightened risk as some are concerned that these companies may find it hard to maintain their elevated levels of dividend handouts. However, a low-volatility theme may help diminish the oscillations associated with this riskier segment of the market.
“LVHD does allocate almost a quarter of its combined weight to the real estate and energy sectors, but with none of the fund’s 82 holdings exceeding weights of 2.81%, single stock risk is relatively small in this fund,” according to InvestorPlace.
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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.