On Thursday, Rosemont, IL-based asset manager TrueMark Investments and Titleist Asset Management launched the TrueShares Low Volatility Equity Income ETF (DIVZ).
DIVZ seeks to provide an actively managed, concentrated portfolio comprising 25 to 35 favorably valued companies with attractive dividends that the portfolio managers expect to grow over time. The portfolio is designed to deliver lower volatility and higher dividends than the overall market while still providing investors with capital appreciation opportunities.
“We’ve been anticipating the listing of DIVZ for quite some time,” said Michael Loukas, CEO at TrueMark Investments. “The investment philosophy clearly reflects what we believe income-focused equity investing should look like in 2021. With an emphasis on valuations and an understanding that dividend-paying companies tend to be established businesses with high cash flows and steady revenue streams, DIVZ is well-positioned to provide exposure to high-quality companies while allowing investors access to stable, growing income streams as well as the opportunity for capital appreciation.”
Loukas continues, “With interest rates at historic lows and a divergent market that has seen growth stocks soar but leave blue chip stocks behind, there is a rare opportunity to deliver high quality, dividend-paying names at deep discounts to investors. DIVZ has been created to provide not only an attractive, growing source of income but also the potential for long term capital appreciation with lower than average volatility.”
Sub-advised by Titleist Asset Management, DIVZ’s portfolio management is led by Austin Graff, who has a proven track record of managing dividend-focused strategies.
“We thoroughly analyze the financial health of companies in our investment universe to identify potential investments with above-average dividend yields, sustainable dividend growth, and long-term capital appreciation potential,” said Graff.
“Dividends have historically been important contributors to total return, so we put DIVZ together with an emphasis on dividends. The portfolio goals include attractive growing dividends, long-term capital appreciation, and less volatility than the overall market, a combination that we believe will prove attractive to investors that are focused on risk-adjusted returns.”
Digging Into DIVZ
As far as what the companies look to accomplish, Loukas added, “The TrueShares ETF line-up has never been about chasing down every investment trend and niche sector in the industry. As a company, we focus solely on areas where we believe our expertise can create long-term value for investors. As seen with LRNZ, ECOZ, or the Structured Outcome Series, our sub-advisor selection process is a testament to that. Austin Graff and Titleist Asset Management are well suited to continue our mantra of delivering specialized investment acumen to an area of need in the marketplace. DIVZ addresses a specific pain point, which is how to obtain yield and reduce volatility without sacrificing the growth potential.”
Loukas continued, “We believe the market currently underappreciates many blue-chip dividend-paying companies. Companies with stable businesses that generate significant and consistent free cash flows are trading at a discount. These stocks are inherently low duration assets. With interest rates at all-time lows, longer duration assets receive the majority of investor attention in today’s market. Eventually, policies supporting monetary easing and economic growth will likely cause interest rates to go up. As this takes place, we believe it will be in investors’ best interest to be in a portfolio like DIVZ.”
DIVZ begins with a universe of U.S. equities with above-average dividends versus the S&P 500. The fund focuses on companies with market caps greater than $8 billion but can potentially include mid- and small-caps as well. DIVZ leverages fundamental research, competitive analysis, and meeting with company management to identify companies with above-average dividend yield, sustainable dividend growth, and attractive valuations. Additionally, DIVZ’s expense ratio is 0.65%.
Finding Potential Over Drawbacks
Looking at the concern for overlooked drawbacks to popular passive index-based dividend funds, Loukas explains, “Most passive indices either have a low dividend that is growing with similar volatility to the market or a high dividend with the risk of declining. DIVZ is positioned to provide both an attractive dividend today and dividend growth over time. Our focus on a concentrated portfolio of quality companies at attractive valuations also reduces volatility as it decreases the probability of being invested in value traps that have high dividends for the wrong reasons.
Loukas has even more to say when discussing what sectors offer the best dividend-growth potential looking ahead, noting, “We like healthcare and financials. Many pharmaceutical companies also have significant free cash flows and a history of rewarding investors with attractive dividend growth. We don’t see that changing anytime soon. Banks are particularly attractive because regulators restricted dividend growth and incentivized management teams to build reserves in 2020 until the pandemic’s ramifications could be fully appreciated. Now that we appear to be exiting the pandemic induced recession, banks are expected to regain freedom over capital allocation and will likely have significant excess reserves which will be distributed through buybacks and dividend increases in 2021 and beyond.”
Finally, when considering how the new Low-Volatility Equity income ETF fits into existing portfolios, Loukas states, “For investors seeking alternative sources of income, or that are just worried about current market valuations, DIVZ has the potential to be a core holding in many portfolios. First, it provides a less interest rate sensitive source of income (low duration) that is expected to grow over time, helping solve the income problem that many investors face today. Second, by owning stable blue-chip companies that generate a lot of free cash flow and currently trade at a discount, we believe the portfolio is well-positioned to outperform through a market cycle. We believe income and long-term capital appreciation with lower relative volatility are two characteristics that have peaked investor interest in the current market.”
For more information, visit www.true-shares.com/divz.
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