Despite rising interest, plenty of high-dividend equities are outperforming the broader market this year. Some are even generating positive returns.
The same sentiments can be applied to select low-volatility exchange traded funds. Put it all together, and it’s clear that the high dividend/low volatility concept is a potent one. Take the case of the Legg Mason Low-Volatility High-Dividend ETF (NASDAQ: LVHD). LVHD is down just 1.37% year-to-date compared to a 12.12% decline by the S&P 500.
“Dividend stocks have far outshined the broader U.S. market this year,” noted Morningstar analyst Lauren Solberg. “With stocks having flirted with a bear market, inflation still at a 40-year high and the Federal Reserve raising interest rates, dividend-paying stocks can help cushion the blow of rocky markets by offering a stream of income.”
Importantly, LVHD is doing its job this year. When it comes to low-volatility ETFs, “doing the job” means performing less poorly when the broader market swoons and delivering less volatility. Check and check for LVHD.
As noted above, the ETF is sharply outpacing the S&P 500 year-to-date. LVHD is doing so with annualized volatility of 15%, as of June 1, compared to 24.2% on the S&P 500, according to ETFReplay data.
Not surprisingly, LVHD achieves these noteworthy feats with a heavily defensive portfolio. For example, the consumer staples sector represents a quarter of the fund’s weight, while the utilities and real estate sectors combine for almost 29.5% of the portfolio.
Utilities are often viewed as vulnerable to rising interest rates and high inflation — the very conditions that investors are contending with today — but LVHD offsets some of that risk with its real estate exposure. Real estate investment trusts (REITs) feature pricing power by way of inflation escalators in rental agreements, providing investors with some buffer against rising costs.
On that note, two of LVHD’s REIT holdings — Gaming and Leisure Properties (NASDAQ:GLPI) and VICI Properties (NYSE:VICI) — have impressive inflation-fighting credentials.
“Casino REITs have been among the best-performing property sectors this year as the positive tailwinds from the leisure demand recovery – particularly in the critical Las Vegas market — have offset inflation headwinds and economic growth concerns,” according to Hoya Capital.
Caesars Palace owner VICI and Gaming and Leisure combine for about 3% of LVHD’s weight. None of the ETF’s holdings exceed an allocation of 2.78%, indicating that single-stock risk is subdued in the fund.
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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.