Markets may have leapt with figurative joy this week following the softer-than-expected CPI print, but it’s still not clear whether the economy is out of the woods yet. Investors clamoring for low volatility and reliable dividends may want to look to a low-vol dividend ETF like the Franklin International Low Volatility High Dividend Index ETF (LVHI) as an option in turbulent times.
Risk-minded investors may have been thrilled with Thursday’s market exploits as the DOW jumped 1,200 points and the S&P 500 increased 5% in the largest rally in two years. But with the likes of Carl Icahn pouring water on an ebullient market, saying he still believes investors are facing a bear market, many investors may still be on the lookout for reliable sources of income that shield investors from volatility.
With the possibility of recession still very much in the cards as the Fed may still be raising rates, it’s not clear that the Fall rally will remain durable, suggesting that particularly seniors may want to look to high dividend strategies to guard against a bumpy ride into the Spring.
“We recently polled advisors on their biggest goal for clients over the next six months, and the majority chose ‘mitigate their exposure to market volatility and downside risk,’” said VettaFi head of research Todd Rosenbluth. “LVHD combines two factors focused on such attributes and in low cost, easy to implement portfolio.”
LVHI tracks the QS International Low Volatility High Dividend Hedged Index, aiming explicitly for what the issuer calls “stable yield.” By considering the volatility of prices and earnings in addition to yields, the ETF strips certain names from its broader index, capping REIT and country exposure at 15% and overall geographic exposure at 50%. Sectors, meanwhile, are capped at 25%.
The low-vol dividend ETF has performed well all year long, returning 3.3% YTD compared to -14% for the Factset Segment Average and -8% for the ETF Database Category Average, and 9% over the last month compared to 6.7% for the ETF Database Category Average. LVHI has also added $34 million in net inflows over the previous month.
Those investors looking for strong dividends in turbulent times can get LVHI exposure for 40 basis points, which may prove to be a decent option as markets continue to change quickly in an uncertain environment.
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