A Seasoned Dividend ETF Tries To Get Its Groove Back
Seven exchange traded funds hit 52-week highs on Wednesday. Underscoring the strength displayed by the utilities sector this year, five of those funds were utilities ETFs.
Leading up to the Federal Reserve raising interest rates in December, the first such move by the U.S. central bank in nearly a decade, utilities stocks and exchange-traded funds were widely seen as vulnerable to higher U.S. borrowing costs.
Historical data confirm utilities stocks are the most negatively correlated to rising U.S. interest rates, and as such, they typically lag during rising rates environments. Last year, utilities finished as the third-worst performing sector in the S&P 500.
Utilities' resurgence, aided in large part by declining Treasury yields has also been a boon for an array of dividend ETFs that are heavily allocated to the sector. The First Trust Value Line® Dividend Index Fund (NYSE: FVD) is one such fund.
Although FVD is up just 1.6 percent year-to-date, that is a better showing than some more popular dividend ETFs. It is also a performance that is owed in large part to the ETF's 23.4 percent weight to the utilities sector, one of the largest weights to that group among all dividend ETFs.
FVD, which has more than $1.2 billion in assets under management, follows the Value Line® Dividend Index. That benchmark “begins with the universe of stocks that Value Line® gives a SafetyTM Ranking of #1 or #2 using the Value Line® SafetyTM Ranking System. All registered investment companies, limited partnerships and foreign securities not listed in the U.S. are removed from this universe,” according to First Trust.
From there, higher-than-average yielders are selected with companies with market values below $1 billion excluded. FVD, which carries a five-star rating from Morningstar, holds 192 stocks.
None of FVD's holdings garner a weight above 0.64 percent. The ETF's top 10 holdings, which feature two utilities stocks, include Questar Corporation (NYSE: STR), Mattel Inc. (NYSE: MAT) and Illinois Tool Works Inc. (NYSE: ITW).
FVD's trailing 12-month distribution is 2.36 percent.
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