Comparing Two Low Volatility Dividend ETFs: 'The Devil Remains In The Details'
In the world of smart beta exchange traded funds, low volatility and dividends are two of the most popular concepts. Some funds marry dividend and low volatility themes, whether by intent or indirectly.
The leader of the low vol/dividend ETF pack is the PowerShares S&P 500 High Dividend Low Volatility Portfolio (NYSE:SPHD), which debuted over five years ago and has $2.66 billion in assets under management. SPHD tracks an index comprised of the 50 highest yielding S&P 500 stocks with the lowest trailing 12-month volatility. Not surprisingly, SPHD's success has spurred competition, but not all ETFs with similar objectives are really twins.
“As the non-market-cap weighted ETF universe continues to expand, investors have an increasingly large array of choices to consider, depending whether they think we’re in a risk-on or a risk-off environment,” CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth said in a Wednesday note. “Yet even in similar-sounding portfolios, the devil remains in the details — making it important for investors to understand what’s inside.”
SPHD's primary competitor is the Legg Mason Low Volatility High Dividend ETF (NASDAQ:LVHD). LVHD will be three years old in December and has nearly $599 million in assets under management.
SPHD and LVHD “have portfolios that earn favorably low risk considerations," according to CFRA Research.
"Both have hefty weights in the risk-off utility sector; but when one looks closely at what is inside, much is very different,” said Rosenbluth.
SPHD, the PowerShares offering, allocates nearly 42 percent of its combined weight to the utilities and real estate sectors. Those sectors combine for about 30 percent of LVHD's roster. Both ETFs have consumer staples allocations of over 14 percent, SPHD's is closer to 15 percent.
"Meanwhile, LVHD had higher weightings in consumer discretionary (12 percent vs. 6 percent for SPHD) and information technology (12 percent vs. 7 percent),” Rosenbluth said.
LVHD has a 30-day SEC yield of 3.73 percent compared to 4.24 percent on SPHD. SPHD is slightly pricier with an annual fee of 0.30 percent, 3 basis points above the 0.27 percent LVHD charges.
CFRA has Overweight ratings on both ETFs.
Todd Shriber owns shares of SPHD.
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