Some exchange traded funds offer investors the ability to generate income while reducing portfolio volatility. The VictoryShares US Large Cap High Div Volatility Wtd ETF (NasdaqGM: CDL) is one of the more compelling options in that mix.
The VictoryShares volatility weighted approach should not be confused with low-vol strategies, which are designed to capture excess returns to stocks with lower-than-average volatility, beta, and/or idiosyncratic risk.
CDL tracks the highest 100 dividend yielding stocks of the CEMP U.S. Large Cap 500 Volatility Weighted Index with four quarters of positive earnings and are weighted based on their daily standard deviation, or volatility.
“That index has some requirements that can help reduce risk. Components are weighted by their standard deviation over the past 180 days and are required to be earnings positive for at least four consecutive quarters,” reports InvestorPlace. “CDL’s strategy is effective as the ETF had a standard deviation of just 8% at the end of 2017, which is below the comparable metric on the S&P 500. Additionally, CDL’s underlying index has outpaced the S&P 500 by 170 basis points since the index was launched in July 2015.”
Dividend growth as a means of trumping inflation could and arguably should serve to highlight the advantages of the ETFs that focus on dividend growth stocks. That group is comprised of well-established ETFs that emphasize dividend increase streaks as well as a new breed of funds that look for sectors chock full of stocks that have the potential to be future sources of dividend growth.
Companies with a record of raising dividends are more attractive than usual since they issue their dividends cautiously. These dividend payers typically include higher quality companies that are more cautious when raising dividends since they would do so without stretching their balance sheets.
“Like rival low-volatility strategies, this VictoryShares ETF is heavily allocated to the utilities and consumer staples as those groups combine for about 38% of CDL’s roster. Financial services and consumer discretionary stocks combine for approximately 28 percent,” 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.