It goes without saying that 2022 has been a tumultuous year in the markets, with geopolitical, inflationary, supply chain, and rising rate factors making for quite a volatile year in the United States and abroad. For those investors on the lookout for low vol dividend exposure, consider the stable yield ETF pairing of the Franklin U.S. Low Volatility High Dividend Index ETF (LVHD) and the Franklin International Low Volatility High Dividend Index ETF (LVHI).
Investors may have been encouraged by the October and November mini rally following recent, softer CPI prints, but caution might still be merited. The Fed is still dead set on defeating inflation, with debate ongoing as to the degree and number of interest rate hikes remaining going into the New Year. Add in the possibility of a looming recession, and the appeal of reliable, current income becomes clear.
LVHD and LVHI track the QS Low Volatility High Dividend Index and the QS International Low Volatility High Dividend Hedged Index respectively, and aim to provide more stable income through relatively high dividends and lower price and earnings volatility.
Both ETFs calculate a “stable yield” score for stocks, adjusting yields from more volatile stocks based on price and earnings volatility downward, while adjusting the yield of stocks with relatively lower price and earnings volatility upward.
The ETFs’ managers expect that LVHD will generally hold 50 to 100 component securities in its underlying index, with no individual component exceeding 2.5% and with REIT components not exceeding 15%. LVHI meanwhile is anticipated to hold 50 to 200 securities, with the same single component cap and a single country weight cap of 15% and 50% limit on a given region.
As of June 30th, LVHI’s underlying index included securities from countries such as the United Kingdom, Germany, Hong Kong, Japan, France, Singapore, and more. Both LVHD and LVHI are managed by the same portfolio management teams, led by former QS Investors head of global equity strategy Mike LaBella.
LVHD has brought in $89 million over the last month in net inflows according to VettaFi, outperforming both the ETF Database Category Average and Factset Segment Average by at least 4% with LVHD’s one month return of 11.6%. The ETF has also outperformed both categories YTD by at least 5%. LVHD charges 40 basis points.
LVHI, meanwhile, has taken in $36 million over one month in net inflows, returning 9.2% over one month. LVHI beat the ETF Database Category Average by 3% and charges 40 basis points.
For those investors looking for dividends, they should keep an eye on the stable yield ETF pair of LVHI and LVHD. LVHD has an annual dividend yield of 2.6%, again outdoing the ETF Database Category and Factset Segment Averages, while LVHI has an annual dividend yield of 5.1%, 3% higher than the Factset Segment Average and 4.5% higher than the ETF Database Category Average.
The stable yield ETF duo offer less than 18% 20-day volatility according to VettaFi, and less than 19% volatility over 200 days. Combine those volatility levels with dividend seeking, and investors may want to watch what happens in the next few weeks and into an uncertain 2023.
For more news, information, and analysis, visit the Volatility Resource Channel.
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