Market Overview

A Dual-Threat Dividend ETF

A Dual-Threat Dividend ETF

Investors are hearing plenty this year about the potency of the low volatility and how strongly dividend stocks are performing. As has been noted, the combination of those two themes is proving particularly rewarding.

Just look at the Legg Mason Low Volatility High Dividend ETF (NASDAQ: LVHD). Perhaps overlooked due to its status as "still new" (LVHD debuted in December), the Legg Mason Low Volatility High Dividend ETF is proving to be one of the better-timed ETF launches of 2015. In terms of timing, it really does not get much better than the debuting in late December, right before a year rolls around in which the two themes that ETF emphasizes come into style in a big way.

Related Link: A Dominant Dividend ETF

LVHD is “focused on income, risk mitigation and capital appreciation. It is based upon the idea that a stock's ability to sustain a strong dividend payout is often associated with lower volatility, making these two characteristics complementary. Using a disciplined, rules-based methodology, the fund will screen for stocks with the potential for sustainable high dividends, while simultaneously screening out historically volatile stocks in the market,” according to Legg Mason.

Index, Allocations And Holdings

The ETF tracks the QS Low Volatility High Dividend Index, which is constructed by QS Investors, LVHD's sub-adviser. At the sector level, LVHD looks as one would expect a low volatility, high dividend ETF to look as utilities and consumer staples stocks combine for over 44 percent the fund's weight, according to issuer data. Financial services and industrial stocks combine for another 32 percent.

LVHD'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. Over 21 percent of LVHD's lineup of 89 stocks have market values of $3 billion or less or $3 billion to $10 billion.

Eighty-nine (89) stocks does not sound like much, but that is a much larger lineup than some of the ETFs LVHD directly competes with.

As of July 21, LVHD had nearly $71 million in assets under management, solid growth for an ETF of its age and further confirmation that low volatility and dividends are the places to be in 2016. More importantly, year-to-date, LVHD is higher by 18.5 percent, a performance that easily tops that of the S&P 500 and old guard dividend ETFs.

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