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QuantShares Rolls Out a High Yield Hedged ETF (DIVA)

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Trading might have slowed down to start 2015 on account of a host of issues, but this hasn’t put off ETF sponsors from coming up with new products. This is especially true for the yield-focused products as bond yields have taken a dive since last year on faltering global growth, political issues in Greece inducing the return of crisis in the Euro zone, deflationary worries in the most developed regions, slowing emerging markets and an oil market crash.

The low interest rate environment in the U.S., QE talks in the Euro zone and stepped-up economic stimulus in Japan have pushed many investors to dividend stocks, making income paying equities and ETFs solid plays at the current level (read: 3 Unbeatable Dividend ETF All-Stars for Your Portfolio).

As a result, the ETF world has offered a variety of choices in the high yield segment over the last couple of months. However, given the huge size of the space, new and prospective joiners needed some tweaks in their portfolio to gain quick popularity (read: Reality Shares Plans an Active Dividend ETF).  

In tune with this reality, QuantShares recently launched a high dividend ETF in a risk-hedged manner. Let’s dig deeper into the fund below:

DIVA in Focus

This new ETF tracks the INDXX Hedged Dividend Income Index, a benchmark that takes long positions in the highest-yielding 100 dividend stocks and short-positions in 150–200 lowest dividend stocks.  The stocks with stable or increasing dividends along with high yields are the focus of the index. Moreover, to eliminate the risk quotient, the index shorts stocks in each sector with unsteady or small dividends (read: Dividend ETFs Explained: What Investors Need to Know).

The Index in 100% long and 50% short at the time of monthly rebalances, per the issuer. The highest weight for any sector in the long portfolio is capped at 25% while for industries; the cap is at 15%. Sector and industry weights in the short portfolio are limited to 50% of the size of the long sector weights.

Investors should note that the index is structured so as to produce a high current yield and return with the risk profile being like a corporate bond index. The fund charges 99 bps in net expense ratio.

DIVA’s long positions are exposed to stocks like Ford Motor Co. (F), Frontier Communications Corporation (FTR), CBL & Associates Properties Inc. (CBL) and MDU Resources Group Inc. (MDU). The ETF’s short positions include stocks like Dynegy Inc. (DYN), CenturyLink, Inc. (CTL) and Strategic Hotels & Resorts, Inc. (BEE).

How Does it Fit in a Portfolio?

This ETF is an intriguing choice for investors looking for a new approach on income investing. A high dividend profile and a long-short exposure will help investors to ride out the global growth concerns and at the same time earn decent yield. However, this unique approach will cost investors a bit more as the ETF looks a little pricier than other regular dividend-focused funds with a net expense ratio just below one percent.

ETF Competition

It is hard to point out the direct competitors of DIVA given the novelty of the latter. Still, investors should note that the product will face tough competition as far as dividend yield is concerned.

Vanguard Dividend Appreciation ETF (VIG) rules the space with about $21 billion in assets while YieldShares High Income ETF (YYY) tops the list of highest yielding dividend ETFs with a yield of 9.72% at the current level. We believe that high yield focus has been widespread in the space leaving risk hedge as the only attribute of DIVA to attract investors’ attention (read: 3 Top Performing Dividend ETFs to Watch in 2015).

However, considering investors’ growing affection for high yield products, they should like products which come up with new approaches. As DIVA falls in this category, it should prove itself as an admired ETF if it is able to generate yield of around 5%.

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