In a stubbornly low-yield and uncertain market environment, exchange traded fund investors may want to consider an alternative strategy to hedge risks while still gaining exposure to some attractive income opportunities.
On the upcoming webcast (available for CE Credit), Innovative Income Strategies for Today’s Challenging Environment, Chuck Martin, Managing Director and Portfolio Manager at QuantShares, and Michael Venuto, Chief Investment Officer for Toroso Asset Management, will outline the current yield landscape and scrutinize an alternative dividend-generating fund strategy that could lower risk and volatility relative to traditional positions.
Specifically, the Hedged Dividend Income ETF (NYSEArca: DIVA) tracks the INDXX Hedged Dividend Income Index, which is designed to deliver to investors a strong current yield capital appreciation potential with a risk profile similar to a corporate bond index.
DIVA has two main objectives: income and capital appreciation. The fund will hold 100 equally weighted securities within the universe of the largest 1000 US stocks that have paid consistent or growing dividends and which have the highest dividend yields. Additionally, the fund will short approximately 150 to 200 stocks, within the same universe, that have the lowest-to-no dividend history and low yields.
The underlying index will invest about 100% of its net assets in the long components with a short exposure to the short components of the index equal to about 50% of its net assets.
Due to its indexing methodology, investors may find higher yields than dividend stocks while potentially hedging against volatility of equity markets. The portfolio could ensure optimal diversification by capping sector and industry weights. The portfolio also potentially provides significantly lower levels of interest rate and credit risk compared to a traditional corporate bond fund.
Related: New ETF is a Dividend Diva With a Hedge
Sector weights include basic materials 1.1%, consumer cyclical 13.0%, financial services 10.8%, real estate 15.4%, telecom services 3.0%, energy 21.6%, industrials 2.9%, tech 6.1%, consumer defensive 4.8%, healthcare 2.1% and utilities 19.2%.
Top holdings include ONEOK 2.1%, HollyFrontier 1.1%, Spirit Realty Capital 1.1%, FirstEnergy 1.1% and Xerox 1.1%.
Financial advisors who are interested in learning more about alternative income strategies can register for the Wednesday, August 30 webcast here.