The Reality Shares DIVS ETF (NYSEArca: DIVY), which offers investors a unique approach to dividend growth, is now three years old. That is an important milestone in the fund universe because many advisors and investors look to evaluate an ETF or mutual fund’s three-year track record, among other metrics.
DIVY tires to provide exposure to the growth rate of expected dividends and looks to deliver long-term capital appreciation rather than income and yield through options contracts and dividend swaps.
Investors who are wary of the negative effects of rising interest rates may also find that the dividend strategy may continue to perform in the environment ahead. Dividends have historically increased during periods of both rising and falling interest rates, showing negative correlation to bonds when rates rise and positive correlation to bonds when rates fall, which suggest that dividend growth may be a suitable bond alternative ahead.
“Since inception in 2014, DIVY has exhibited a Sharpe Ratio of 1.35 and a Sortino Ratio of 2.48, which we believe are strong risk-adjusted returns within the alternative ETF landscape,” according to a statement from San Diego-based Reality Shares.
DIVY tracks the Reality Shares DIVS Index and has 19 holdings. Since inception, the ETF has been barely more volatile than the Bloomberg Barclays US Aggregate Bond Index and significantly less volatile than the S&P 500.
“As of Dec. 17, 2017, the fund is up 5.29 percent year-to-date and 5.62 percent on an annualized basis since inception (Dec. 18, 2014), with an annualized standard deviation of 3.90 percent since inception,” according to Reality Shares.
Companies that have consistently increased dividends tend to be high in quality and show a strong potential for growth. These dividend growers have been able to withstand periods of market duress, exhibiting smaller drawdowns as investors sold off riskier assets, while still delivering strong returns on the upside, to generate improved risk-adjusted returns over the long haul.
“We created DIVY to provide an absolute return strategy that offers advisors and retail investors lower volatility,” said Eric Ervin, CEO of Reality Shares. “Investors wary of the volatility associated with equities but looking to complement their fixed income strategies have embraced the innovative methodology DIVY seeks to track.”
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