Market Overview

A Dominant Dividend ETF

A Dominant Dividend ETF

More than halfway through 2016, it probably is no longer surprising to investors that among equity exchange-traded funds, dividend and low volatility strategies are working. So it stands to reason that the combination of those strategies should be proving particularly efficacious.

That is what the PowerShares S&P 500 High Dividend Low Volatility Portfolio (PowerShares Exchange-Traded Fund Trust II (NYSE: SPHD)) does. After touching another all-time high on Thursday, a frequent occurrence this year, SPHD is now up nearly 20 percent year-to-date. SPHD allocates about 40 percent of its combined weight to financial services and utilities stocks, but with most of the ETF's financial holdings benefiting from lower interest rates, SPHD has been one of the best performing dividend ETFs this year.

With its emphasis on low volatility and high yields, SPHD can be considered a multi-factor strategy. The ETF holds the 50 S&P 500 stocks with the lowest trailing 12-month volatility and highest dividend yields, hence the significant allocations to real estate and utilities stocks.

Recent Success

To this point in 2016, the investment environment has been conducive to low volatility excellence.

Related Link: Low Volatility And Momentum Meet In This New ETF

“Although not a primary characteristic, one of the typical attributes of low volatility stocks is a dividend payment. Therefore, the low volatility factor benefited from investors seeking yield as well as the spike in volatility around the Brexit vote. Maybe more important, the CBOE Volatility Index (VIX) rose sharply on June 10 and spiked to over 25 on June 24 and 25 before easing later in the month after Brexit.

"The low volatility factor may show excess return during periods of high or rising equity market volatility, and it remained a go-to option during this period of unease over economic growth and political risks,” said PowerShares in a recent note.

SPHD's status as a low volatility dividend fund might imply that it is an exclusively large-cap ETF, but the fund has decent exposure to mid-caps, another market segment where low volatility strategies are winning this year. The ETF allocates over 43 percent of its combined weight to mid-cap value and blend stocks.

“Mid-cap value’s performance was lifted by its overweight to real estate, energy and utilities. Real estate investment trusts (REITs) and utilities were supported by the drop in interest rates,” added PowerShares.

Investors clearly like SPHD's story. The ETF has hauled in $1.49 billion in new assets this year, more than any other PowerShares ETF.

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Disclosure: Todd Shriber owns shares of SPHD.


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