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5 Overlooked Smart Beta Dividend ETFs Worth Buying Now
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The prospect of higher-than-expected rates hike and rising bond yields have diminished the appeal of dividend stocks and ETFs. This is especially true given the robust January job data, which showed the fastest pace of wage growth in more than eight years, as well as the latest Fed minutes (read: Financial ETFs & Stocks to Buy Post Fed Minutes).
Both reflect stronger economy and signs of an uptick in inflation, thereby raising the speculation of more rates hike than the three lift-offs penciled in by the Fed for this year. As a result, bond yields have risen sharply over the past few weeks, taking away the sheen from this corner of the investing world. However, bouts of volatility in the stock market have rekindled investors’ love for the products that provide stability and safety in a rocky market.
In particular, higher rates will lead to a rise in borrowing costs, thereby hurting economic growth. Additionally, Washington turmoil, geopolitical tensions, and stretched valuations have added to the woes. Nothing seems a better strategy than picking dividend-focused products in this kind of an environment.
Dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. Dividend paying securities are major sources of consistent income for investors, creating wealth when returns from the equity market are at risk. This is because the companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
While the dividend space has been crowded, we have highlighted five smart beta dividend ETFs for investors seeking good yields as well as returns in a rocky market. This is because the smart beta strategy helps to capture market inefficiencies in a transparent way by adding extra metrics like volatility, revenue, earnings, momentum, equal weight and other fundamental factors to the market cap or rules-based indices (read: Smart Beta Investing: Fad or Future of the ETF Industry?).
These funds offer investors an opportunity to increase portfolio diversification, reduce risk and enhance returns (alpha generation) over time. Though these might not be much popular, they have AUM of more than $100 million and yield higher than the S&P 500 ETF (SPY - Free Report) , making them excellent choices in the current market turmoil.
This fund seeks to track the Russell 1000 Yield Focused Factor Index, which measures the performance of large-cap securities demonstrating a combination of core factors (high value, high quality, and low size characteristics), with a focus factor comprising high yield characteristics. Holding 290 stocks in its basket, the fund has well-diversified exposure across various components with none holding more than 2.91% of the assets. Financial services and consumer discretionary are the top two sectors, accounting for more than 24% share each while materials & processing have double-digit allocation.
The fund has AUM of $391.3 million and trades in light volume of about 1,000 shares. Expense ratio came in at 0.20%. The ETF is down a modest 0.6% in the year-to-date timeframe and has a dividend yield of 3.25%. It has a Zacks ETF Rank #3 (Hold).
This fund provides exposure to 51 of the highest dividend yielding U.S. securities by tracking the INDXX SuperDividend U.S. Low Volatility Index. It is widely diversified across each component as none of these hold more than 2.54% of the assets. Utilities accounts for one-fourth of the portfolio, closely followed by real estate (23%), consumer discretionary (13%), energy (13%) and consumer staples (12%).
The product has amassed $399.5 million in its asset base while trading in moderate volume of about 79,000 shares. It charges 45 bps in fees per year from investors and has a high annual dividend yield of 6.18%. The ETF has shed 4.3% so far this year and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Low Beta ETFs to Buy as Bulls Play Hide & Seek).
The product provides exposure to companies that have increased their annual dividend for 10 or more consecutive fiscal years by tracking the NASDAQ US Broad Dividend Achievers Index. Holding 261 stocks, it is widely diversified across various securities, each accounting for less than 4.5% share. Consumer staples, industrials and information technology are the top three sectors with a double-digit allocation each. This fund has amassed $306.5 million and trades in lower average daily volume of 24,000 shares. Expense ratio came in at 0.55%.
PFM has lost 2.89% so far this year and has an annual dividend yield of 1.75%. The fund has a Zacks ETF Rank #3 with a Medium risk outlook.
With AUM of $258.5 million, this ETF follows the Fidelity Dividend Index for Rising Rates, which reflects the performance of dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields. It holds 111 stocks in its basket with each making up for less than 4.5% of the assets. Information technology is the top sector accounting for one-fourth of the portfolio while financials, healthcare, consumer discretionary and industrials round of the next spots with double-digit exposure each.
FDRR trades in a moderate volume of about 64,000 shares and charges 29 bps in expense ratio. The fund has gained 0.7% in the year-to-date timeframe and has a dividend yield of 2.87% per annum (read: Prepare for Bond Bear Market With These ETFs).
FlexShares Quality Dividend Defensive Index Fund (QDEF - Free Report)
The product fund follows the Northern Trust Quality Dividend Defensive Index, which offers exposure to a high-quality income-oriented portfolio of U.S. stocks with an emphasis on long-term capital growth and a beta higher than the Northern Trust 1250 Index. In total, the fund holds 163 stocks in its basket that are well spread out across securities, with each holding less than 4.02% of the assets. In terms of sector holdings, information technology, financials, consumer discretionary, health care and industrials are the top five sectors.
QDEF has $312.7 million and trades in a paltry volume of about 15,000 shares. It charges 37 bps in expense ratio. The fund has lost 1.8% in the year-to-date timeframe and has a dividend yield of 2.72% per annum.
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5 Overlooked Smart Beta Dividend ETFs Worth Buying Now
The prospect of higher-than-expected rates hike and rising bond yields have diminished the appeal of dividend stocks and ETFs. This is especially true given the robust January job data, which showed the fastest pace of wage growth in more than eight years, as well as the latest Fed minutes (read: Financial ETFs & Stocks to Buy Post Fed Minutes).
Both reflect stronger economy and signs of an uptick in inflation, thereby raising the speculation of more rates hike than the three lift-offs penciled in by the Fed for this year. As a result, bond yields have risen sharply over the past few weeks, taking away the sheen from this corner of the investing world. However, bouts of volatility in the stock market have rekindled investors’ love for the products that provide stability and safety in a rocky market.
In particular, higher rates will lead to a rise in borrowing costs, thereby hurting economic growth. Additionally, Washington turmoil, geopolitical tensions, and stretched valuations have added to the woes. Nothing seems a better strategy than picking dividend-focused products in this kind of an environment.
Dividend-focused products offer safety in the form of payouts and stability in the form of mature companies that are less volatile to large swings in stock prices. Dividend paying securities are major sources of consistent income for investors, creating wealth when returns from the equity market are at risk. This is because the companies that pay dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.
While the dividend space has been crowded, we have highlighted five smart beta dividend ETFs for investors seeking good yields as well as returns in a rocky market. This is because the smart beta strategy helps to capture market inefficiencies in a transparent way by adding extra metrics like volatility, revenue, earnings, momentum, equal weight and other fundamental factors to the market cap or rules-based indices (read: Smart Beta Investing: Fad or Future of the ETF Industry?).
These funds offer investors an opportunity to increase portfolio diversification, reduce risk and enhance returns (alpha generation) over time. Though these might not be much popular, they have AUM of more than $100 million and yield higher than the S&P 500 ETF (SPY - Free Report) , making them excellent choices in the current market turmoil.
SPDR Russell 1000 Yield Focus ETF (ONEY - Free Report)
This fund seeks to track the Russell 1000 Yield Focused Factor Index, which measures the performance of large-cap securities demonstrating a combination of core factors (high value, high quality, and low size characteristics), with a focus factor comprising high yield characteristics. Holding 290 stocks in its basket, the fund has well-diversified exposure across various components with none holding more than 2.91% of the assets. Financial services and consumer discretionary are the top two sectors, accounting for more than 24% share each while materials & processing have double-digit allocation.
The fund has AUM of $391.3 million and trades in light volume of about 1,000 shares. Expense ratio came in at 0.20%. The ETF is down a modest 0.6% in the year-to-date timeframe and has a dividend yield of 3.25%. It has a Zacks ETF Rank #3 (Hold).
Global X SuperDividend U.S. ETF (DIV - Free Report)
This fund provides exposure to 51 of the highest dividend yielding U.S. securities by tracking the INDXX SuperDividend U.S. Low Volatility Index. It is widely diversified across each component as none of these hold more than 2.54% of the assets. Utilities accounts for one-fourth of the portfolio, closely followed by real estate (23%), consumer discretionary (13%), energy (13%) and consumer staples (12%).
The product has amassed $399.5 million in its asset base while trading in moderate volume of about 79,000 shares. It charges 45 bps in fees per year from investors and has a high annual dividend yield of 6.18%. The ETF has shed 4.3% so far this year and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Low Beta ETFs to Buy as Bulls Play Hide & Seek).
PowerShares Dividend Achievers Portfolio (PFM - Free Report)
The product provides exposure to companies that have increased their annual dividend for 10 or more consecutive fiscal years by tracking the NASDAQ US Broad Dividend Achievers Index. Holding 261 stocks, it is widely diversified across various securities, each accounting for less than 4.5% share. Consumer staples, industrials and information technology are the top three sectors with a double-digit allocation each. This fund has amassed $306.5 million and trades in lower average daily volume of 24,000 shares. Expense ratio came in at 0.55%.
PFM has lost 2.89% so far this year and has an annual dividend yield of 1.75%. The fund has a Zacks ETF Rank #3 with a Medium risk outlook.
Fidelity Dividend ETF for Rising Rates (FDRR - Free Report)
With AUM of $258.5 million, this ETF follows the Fidelity Dividend Index for Rising Rates, which reflects the performance of dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields. It holds 111 stocks in its basket with each making up for less than 4.5% of the assets. Information technology is the top sector accounting for one-fourth of the portfolio while financials, healthcare, consumer discretionary and industrials round of the next spots with double-digit exposure each.
FDRR trades in a moderate volume of about 64,000 shares and charges 29 bps in expense ratio. The fund has gained 0.7% in the year-to-date timeframe and has a dividend yield of 2.87% per annum (read: Prepare for Bond Bear Market With These ETFs).
FlexShares Quality Dividend Defensive Index Fund (QDEF - Free Report)
The product fund follows the Northern Trust Quality Dividend Defensive Index, which offers exposure to a high-quality income-oriented portfolio of U.S. stocks with an emphasis on long-term capital growth and a beta higher than the Northern Trust 1250 Index. In total, the fund holds 163 stocks in its basket that are well spread out across securities, with each holding less than 4.02% of the assets. In terms of sector holdings, information technology, financials, consumer discretionary, health care and industrials are the top five sectors.
QDEF has $312.7 million and trades in a paltry volume of about 15,000 shares. It charges 37 bps in expense ratio. The fund has lost 1.8% in the year-to-date timeframe and has a dividend yield of 2.72% per annum.
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