Market Overview

A Solid Start For This Dividend ETF

A Solid Start For This Dividend ETF

Historical data suggest dividend-paying stocks are often less volatile than their non-dividend paying counterparts. So perhaps it's not surprising many investors dividends and the low volatility factor to come together.

The intersection of dividends and low volatility is one exchange traded funds issuers have readily made available to investors. In some instances, that combination has proven successful. The Legg Mason Low Volatility High Dividend ETF (NASDAQ: LVHD) is part of that group.

What Is LVHD?

LVHD is “focused on income, risk mitigation and capital appreciation. It's based upon the idea 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.

The ETF tracks the QS Low Volatility High Dividend Index, which is constructed by QS Investors, LVHD's sub-adviser.

Related Link: Who's The Boss? It Could Be This New ETF

LVHD is still relatively new, having debuted in late December 2015. Since inception, the ETF is up nearly 20.9 percent, an advantage of more than 400 basis points over the S&P 500. The Legg Mason ETF has also topped the Vanguard High Yield Dividend ETF (NYSE: VYM), one of the largest dividend ETFs, by about 300 basis points since coming to market.

LVHD has just over $115 million in assets under management, putting it on the more successful end of ETFs that have debuted over the past 14 months.

Home to 88 stocks, LVHD's portfolio construction isn't altogether surprising for an ETF that marries dividends and the low volatility factor. Translation: Utilities and consumer staples names are the ETF's largest and third-largest sector weights, respectively, combining for over 38 percent of its weight. LVHD's telecom weight is perhaps surprisingly modest at less than 5 percent, but its technology allocation is arguably a surprise as well at just under 11 percent.

LVHD's top 10 holdings, a group that represents just over 27 percent of the fund's weight, contains four members of the Dow Jones Industrial Average. The ETF's holdings have a weighted average market value of almost $63.1 billion underscoring the fund's large-cap tilt.


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