Plenty of investors love the idea of increasing their portfolios’ dividend yield while potentially lowering equity volatility.
The VictoryShares US EQ Income Enhanced Volatility Wtd ETF (NASDAQ: CDC) is an ETF that can help meet those objectives.
CDC, which turned three years old in July, has a dividend yield of 3.25%, well above what investors find on the S&P 500 or 10-year Treasuries. The ETF follows the CEMP US Large Cap High Dividend 100 Long/Cash Volatility Weighted Index while combining “fundamental criteria and volatility weighting in an effort to outperform traditional cap-weighted indexing strategies,” according to VictoryShares.
CDC’s underlying is not a run-of-the-mill equity benchmark. It features the ability to reduce equity exposure when stocks decline in dramatic fashion.
“The Long/Cash Index tactically reduces its exposure to the equity markets during periods of significant market declines and reinvests when market prices have further declined or rebounded,” according to VictoryShares.
The VictoryShares volatility weighted approach differs from competing methodologies that invest in low volatility companies. Instead, the indexes use volatility as a weighting mechanism to seek to achieve broad-market diversification. Over the past three years, Victory Capital has extended the approach beyond the US broad market to provide investors with volatility weighted solutions that seek to provide exposure to high dividends as well as international and emerging markets.
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CDC holds 102 stocks with a weighted average market capitalization of $63.8 billion, well below the $180.5 billion seen on the S&P 500. Although CDC’s lineup is smaller by market value, the ETF, as measured by price-to-earnings and price-to-book ratios, trades at a discount to the S&P 500.
CDC allocates over 26% of its weight to utilities stocks, helping boost the ETF’s dividend yield. The ETF is also heavily allocated to consumer stocks as consumer discretionary and consumer staples names combine for 27.4% of the ETF’s roster compared to 20.5% in the S&P 500.
Over the past year, CDC has been less volatile than the S&P 500 and since coming to market, the ETF has outperformed the benchmark U.S. equity gauge. CDC is up 8% year-to-date.
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