DLN could be ideally positioned to endure higher interest rates, should the Federal Reserve opt to resume that trend later this year. While a rise in rates would diminish the attractiveness of dividend stocks with premium valuations and low growth, more high quality dividend payers or the group of dividend growers may stand out.
DLN’s “broad dividend-weighted portfolio helps mitigate some of this risk through diversification. Its approach balances firm size against yield and the fund rebalances opportunistically as stocks become cheaper relative to their dividends. Because this fund does not load up on riskier stocks, its holdings have a higher average market-capitalization and return on invested capital than the constituents of the Russell 1000 Value Index,” according to Morningstar.
Due to the tilt toward larger companies that have the balance sheets to promote dividend growth, DLN is heavily allocated to some sectors income investors have come to depend, including consumer staples and healthcare. The ETF also features significant exposure to technology, a sector that is growing dividends at a rapid rate.
For more on smart beta ETFs, visit our Smart Beta Channel.