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High Dividend And Low Volatility ETF Outperforms During Corrections

In this article, I will be conducting an overview of broad defensive ETFs to see how each has performed during market corrections over the past two years. After reading a recent article on the Guggenheim Defensive Equity ETF (NYSEARCA: DEF ) and disagreeing with the author’s conclusion that DEF did not do its job, I decided to conduct an overview of all broad defensive ETFs. To start my search, I had to first generate a list of broad defensive ETFs to examine, therefore I used the Fidelity stock screener and searched through all ETFs that met the following criteria for the best broad defensive ETFs. Screen Criteria After conducting the screen, I excluded any individual sectors ETFs listed because I am looking for a broad defensive ETF that owns multiple sectors. After this, I was left with the following 27 ETFs listed in the table below. Inception Date: Before 1/19/2014 Assets: > $100 Million Geography Objective: Domestic, Global Dividend Yield: > 2.04% [10-yr treasury rate at time of writing] Expense Ratio: < 0.75% Performance YTD: > -7.88% [S&P 500 (NYSEARCA: SPY ) ytd return] 30 Day avg. Volume: > 20K Company Name Symbol FIRST TRUST MORNINGSTAR DIVIDEND LEADERS (NYSEARCA: FDL ) FIRST TRUST VALUE LINE DIVIDEND INDEX (NYSEARCA: FVD ) FLEXSHARES QUALITY DIVIDEND DEFENSIVE INDEX FUND (NYSEARCA: QDEF ) FLEXSHARES QUALITY DIVIDEND INDEX FUND (NYSEARCA: QDF ) GUGGENHEIM DEFENSIVE EQUITY ETF DEF ISHARES CORE HIGH DIVIDEND ETF (NYSEARCA: HDV ) ISHARES MORNINGSTAR LARGE-CAP VALUE ETF (NYSEARCA: JKF ) ISHARES MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY ETF (NYSEARCA: ACWV ) ISHARES MSCI USA MINIMUM VOLATILITY ETF (NYSEARCA: USMV ) ISHARES S&P 500 VALUE ETF (NYSEARCA: IVE ) ISHARES SELECT DIVIDEND ETF (NYSEARCA: DVY ) POWERSHARES DIVIDEND ACHIEVERS (NYSEARCA: PFM ) POWERSHARES DYNAMIC LARGE CAP VALUE (NYSEARCA: PWV ) POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS (NYSEARCA: PEY ) POWERSHARES S&P 500 HIGH DIVIDEND LOW VOLATILITY (NYSEARCA: SPHD ) POWERSHARES S&P 500 HIGH QUALITY PORTFOLIO (NYSEARCA: SPHQ ) POWERSHARES S&P 500 LOW VOLATILITY PORTFOLIO (NYSEARCA: SPLV ) SCHWAB U.S. LARGE-CAP VALUE ETF (NYSEARCA: SCHV ) SCHWAB US DIVIDEND EQUITY ETF (NYSEARCA: SCHD ) SPDR S&P DIVIDEND ETF (NYSEARCA: SDY ) VANGUARD DIVIDEND APPRECIATION ETF (NYSEARCA: VIG ) VANGUARD HIGH DIVIDEND YIELD ETF (NYSEARCA: VYM ) VANGUARD MEGA CAP VALUE ETF (NYSEARCA: MGV ) VANGUARD VALUE ETF (NYSEARCA: VTV ) WISDOMTREE EQUITY INCOME FUND (NYSEARCA: DHS ) WISDOMTREE LARGECAP DIVIDEND (NYSEARCA: DLN ) WISDOMTREE TOTAL DIVIDEND (NYSEARCA: DTD ) Correction Performance Using the ThinkorSwim platform, I looked at how each of the above ETFs performed during market corrections over the past two years. The six correction periods I looked at are listed in the table below. To save space, here is a link to the correction performance data for each of the above ETFs in a Google Doc. *Data is price performance only* Correction Periods YTD 9/16/15 – 9/28/15 7/20/15 – 8/25/15 9/18/14 – 10/16/14 7/23//14 – 8/7/14 1/15/2014 – 2/3/14 Correction Performance Results Of the 27 ETFs I started with, only 11 outperformed SPY during every correction period I looked at. Those ETFs along with the average returns during those periods are listed in the table below. As I noted in the first paragraph, the reason I wrote this article was that I disagreed that DEF was not doing its job. However, as you can see through the data link above and in the table below, DEF did in fact do its job because it outperformed the SPY during each correction period. Looking at the data, you can see that SPHD was by far the best performing ETF during corrections. Average Correction Performance POWERSHARES S&P 500 HIGH DIVIDEND LOW VOLATILITY SPHD -3.89% POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS PEY -4.58% ISHARES MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY ETF ACWV -4.66% ISHARES MSCI USA MINIMUM VOLATILITY ETF USMV -4.68% ISHARES SELECT DIVIDEND ETF DVY -4.71% GUGGENHEIM DEFENSIVE EQUITY ETF DEF -4.76% FIRST TRUST VALUE LINE DIVIDEND INDEX FVD -4.88% SPDR S&P DIVIDEND ETF SDY -5.57% ISHARES CORE HIGH DIVIDEND ETF HDV -5.58% WISDOMTREE EQUITY INCOME FUND DHS -5.71% FLEXSHARES QUALITY DIVIDEND DEFENSIVE INDEX FUND QDEF -5.87% SPDR S&P 500 ETF SPY -7.18% About SPHD Assets: $543 million Expense Ratio: 0.30% Inception: 10/18/2012 Number of Holdings: 50 ETF Description: The PowerShares S&P 500 High Dividend Low Volatility ETF selects 50 stocks from the S&P 500 that have historically provided a high dividend yield and low volatility. [ SPHD Description ] Like many broad defensive ETFs, SPHD largest sector allocation is to utilities, with just over 25% allocated to the sector. The second largest sector is financials coming in at nearly 20% of the ETF. However, out of that nearly 20% allocation, 13.17% is from REITs. SPHD is also very diversified when it comes to individual holdings as well. The top 10 holdings only account for 27.23% of total assets. Therefore, SPHD is not going to hurt by a single large holding that drags the rest of the ETF down. [Chart from SPHD Holdings Page] Closing Thoughts In closing, I believe SPHD is a quality ETF that has shown it can outperform the broad market during a correction. In addition, SPHD has a dividend yield of 3.70%, which is significantly above the current ten-year treasury rate and significantly, above the 2.24% the S&P 500 is currently yielding. The other ten ETFs that also outperformed the SPY during every correction during the last two years are also worthy of further research as defensive ETF candidates. Disclaimer: See here .

I’m Keeping A Close Eye On The PowerShares S&P 500 High Dividend Low Volatility ETF

SPHD has yield of around 3.5%. Investors seeking low volatility and dividends should consider the fund. The fund makes distributions monthly. Recently I’ve been looking through numerous dividend focused ETFs to decide which one(s) I would be happy to add to my portfolio. In general, there are a lot of funds that focus on dividends and a lot to like about most of them. However, there are a few specific funds in this space that I like personally. One of these is the PowerShares S&P 500 High Dividend Low Volatility Portfolio ETF (NYSEARCA: SPHD ). The fund tracks the S&P 500 Low Volatility High Dividend Index, which is comprised of 50 of the least-volatile high dividend-yielding stocks in the S&P 500. This makes the funds portfolio fairly distinct compared with some of the other typical higher dividend funds. It is rebalanced twice a year, and distributions are paid to holders on a monthly basis. The expense ratio is 0.30%, which isn’t necessarily low, but isn’t necessarily too high either. The current 12 month distribution rate (yield) is 3.49%. So the real question to answer is, what is the appeal of this fund? Of course the upfront appeal would be the dividends and higher yield. Getting down to what I’m looking for, the appeal to me is how boring this investment is. By boring I’m talking about the consistent distributions and low volatility. At this point you might be thinking about the dozens of other investments that have both of these characteristics. I’m not about to say that there are not plenty of others out there. Sticking with the equity side of investments one such example might be AT&T (NYSE: T ) (AT&T is the 10th largest holding for the fund). However, the fund offers a totally different element; diversification. Diversification is obviously something all investors want in their portfolios, and this would be one of the key reasons behind my consideration of dividend ETFs. It’s pretty easy to see what makes this ETF boring by just glancing at the holdings. Utilities and financials make up a significant portion of the holdings. Upon closer look a majority of the financials are REITs, though. Both the utilities and REITs are obviously a key to what makes this a higher yielding fund. Getting even more specific into why the fund is boring, other than the low volatility, we can see that a lot of these companies, especially these utilities and REITs, have steady and simple reoccurring income (in some cases regulated). This makes a good portion of the holdings defensive in nature and in turn quite boring. This is where the near-term outlook gets a little more complicated. Keeping in mind that a large portion of the holdings are utilities and REITs things may get a little less boring heading into December. If the Fed raises rates these holdings in particular may be effected negatively to some degree making the value of the fund drop. This may present a better opportunity for investors and more than likely a slightly higher yield. Considering part of my long-term strategy is to grow my portfolio utilizing dividends, I believe the fund connects well with my goals. The fact that distributions are made on a monthly basis is also an added plus for my strategy as I choose other investments to add to my portfolio on a regular basis. In conclusion, I find the PowerShares S&P 500 High Dividend Low Volatility Portfolio ETF to be boring in a good way. While it may not be for all investors, those seeking things such as easy security and diversification should consider it. With what seems to be a Fed rate hike finally coming, I believe it would probably be best to wait and see how the more sensitive holdings react to the actual hike before considering the fund currently. I will be keeping a close eye on the fund for now.

SPHD: A Monthly Dividend ETF With A 3.5% Yield That Is Growing Stronger

Summary SPHD offers an excellent dividend yield of 3.5% with monthly payments. The ETF has a moderate expense ratio. The sector allocations look great and the volatility over the last few years has been lower than the domestic equity market. The PowerShares S&P 500 High Dividend Portfolio ETF (NYSEARCA: SPHD ) looks great. After readers suggested I take a look at the portfolio, I decided it was time to dive inside and see what I could find. This is a very solid ETF. Investors may quibble on whether the allocations are perfectly or merely good, but there is far more to like than to hold against the fund. As you’ll see in the article, I find the sector allocation to be a bigger selling point than the individual holdings. Expenses The expense ratio is a .30%. This is fairly mediocre for expense ratios in my estimation, but there have been quite a few funds coming up lately with expense rates that are downright excellent. Dividend Yield The dividend yield is currently running 3.50%. For the investor that wants a very strong dividend yield to support them in retirement, this should certainly qualify. Investors can create a stronger yield by selecting individual companies, but they are creating a high yield portfolio that is exposed to substantial risk of dividend cuts when they allocate aggressively to companies that are yielding materially higher than this portfolio. There are two other things to like about the dividend here. One is that the dividend is paid out on a monthly basis which many investors appreciate because it is easier for them to plan around. The other is that the 3.5% dividend yield is based on trailing dividends rather than forward dividends and the dividends have been moving slightly higher over the last year. The dividend went from around 9 and a half cents per month to over 10 cents per month. Holdings I grabbed the following chart to demonstrate the weight of the top 10 holdings: Seeing AT&T (NYSE: T ) and Verizon (NYSE: VZ ) with medium weights is one area where I tend to feel conflicted. Investors won’t see the Verizon in the chart, but I rarely find ETFs that only hold one. When I checked the rest of the holdings I found Verizon was represented with 2.22% of the portfolio. The dividend yields are great but the sector is becoming more competitive. On the upside any technology that actually makes them obsolete or at least incapable of growing earnings would be indicative of the investor having a lower cell phone bill, so there is another benefit to aligning the portfolio to match an investor’s individual expenditures. Honestly, is there any better way to pay your phone bill than with a dividend check from the phone company? This is a difficult one to come down on because I love the strategy of covering a cost with dividend income from the company, but I’m also concerned that Sprint (NYSE: S ) is offering a very viable competitive product. Their reception may be terrible in some cities, but they are great in Colorado Springs. Since the allocations are less than 5% of the portfolio combined, I think the representation here is pretty reasonable. I also see Realty Income Corp (NYSE: O ) as an easy choice for investors looking for solid growth in income. The triple net lease REIT has an excellent history of raising dividends. They pay their dividends monthly and have raised the dividend 81 times already. They have done an incredible job of executing their investment strategy and it is simpler than it seems. The REIT enters into net lease operations where the tenant is paying most of the operating costs. Realty Income Corporation is acting as an alternative format of financing for their tenant. Their strategy is so successful that they have been acquiring over a billion dollars in real estate each of the last few years. They already acquired almost a billion dollars in real estate in 2015. Sectors Heavy allocation to utilities makes sense for an equity fund seeking lower total volatility levels. The utility companies have a tendency to be partially correlated to equity and partially correlated to bonds which creates a method for a pure equity ETF to reduce volatility by incorporating some exposure that is very similar to bonds. For investors with a diversified portfolio, that means this fund may not get as large of a benefit from being combined with treasuries and other long duration bonds as a total market portfolio would get. Regardless, with investors needing stronger yields in retirement and often going light on bonds in favor of equity, this would be a more rational allocation model than simply going with full market exposure. The allocation to financials provides the shareholders with exposure to REITs that would fall with utilities when rates go up, but it also gives them access to banks that would benefit from higher rates paid on excess reserves. The combination works fairly well to create a portfolio with lower volatility. The heavy allocations to consumer staples also makes sense in that context since consumer staples tend to be a solid sector for taking smaller losses during a recession. I was a little curious about their decision to put 10% into industrials, but when I looked at the individual holdings for the sector it made sense. While General Electric (NYSE: GE ) is seeing their share prices just getting back to where they before the crash, their still offer a sold 3% yield. Volatility Measured since October 2012, this fund has demonstrated annualized volatility of 10.9% compared to 12.6% for the S&P 500. The beta on the fund has been a mere .75. While the fund has not kept up with the S&P 500, it is a very attractive allocation strategy with the market at fairly high valuation levels. For the investor that would like to reduce their risk and is willing to accept a lower long term projected return, this fund fits the bill. If market prices had fallen by 40%, I would try to look at more aggressive allocations. When prices still seem high, I prefer using defensive allocations and this fund offers a great deal of them. Conclusion All around this looks like a solid fund. The only thing I can find not to be excited about is the expense ratio. Even there, the ratio isn’t terrible. It is simply higher than what I am used to paying as I favor the Vanguard and Schwab ETFs. If this fund got larger and dropped the expense ratio, it would be absolutely excellent. I think that might be a viable option for the fund’s sponsor as well since the strong yield and monthly payment with a low expense ratio would create enough demand to warrant significantly more shares of this ETF being created.