PowerShares, the issuer behind the ultra-popular S&P Low Volatility ETF (SPLV), announced this week the launch of another factor-based fund that will offer exposure to large cap dividend paying stocks. The new S&P 500 High Dividend Portfolio (SPHD) will seek to replicate an index consisting of 50 stocks that have historically exhibited high dividend yields and low volatility. Specifically, the underlying index will determine its holdings as follows [for updates on all new ETFs, sign up for the free ETFdb newsletter]:
- Pick the 75 stocks from the S&P 500 Index that have the highest dividend yield over the last 12 months (with no one sector able to contribute more than 10 names)
- Select the 50 stocks from that group that have the lowest realized volatility over the past 12 months
- Weights each of the 50 components based on dividend yield
The result is a subset of the S&P 500 that has a significantly higher dividend yield and generally lower volatility than the broad benchmark. According to a press release, the underlying index had an average dividend yield of about 4.5% at the end of the third quarter [see Monthly Dividend ETFdb Portfolio].
Under The Hood
|HCN||Health Care REIT||2.7%||4.9%|
|LLY||Eli Lilly & Co||2.6%||3.6%|
The top holdings of SPHD look very different from the primary components of “plain vanilla” S&P 500 ETFs, in part due to the differences in weighting methodologies (the S&P 500 is cap-weighted, while SPHD is linked to a dividend yield-weighted index). SPHD makes its largest individual weightings to Windstream (WIN, 3%), Pitney Bowes (PBI, 3%), and CenturyLink (CTL, 3%). The fund is well balanced from an individual security perspective; the top ten holdings make up only about 25% of total assets.
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Not surprisingly, there is a noticeable value tilt present in SPHD; value stocks make up about 80% of the underlying portfolio. From a sector perspective, corners of the market traditionally known for higher dividend yields are well represented; utilities make up about 22%, followed by consumer staples at about 16%, financials at 13%, and telecoms at 10%. Thanks in part to the cap on ten names from any one sector, all corners of the market are reasonably well represented; consumer discretionary, energy, technology, and materials each receive weights of about 5% [see our 8% Yield ETFdb Portfolio].
SPHD also has a larger allocation to mid-cap stocks than other ETFs that seek to replicate the S&P 500; about 45% of the portfolio is in mid cap names currently.
There are now more than 50 dividend ETFs on the market, including a number that seek to replicate dividend-weighted and dividend yield-weighted indexes. SPHD will charge an expense ratio of 0.30% annually; the cheapest dividend ETFs on the market have annual management fees as low as 0.07% (SCHD) [try our Free ETF Screener].
SPHD join a number of other PowerShares “factor ETFs” including the extremely popular low volatility SPLV. That fund, which holds the components of the S&P 500 with lowest volatility, has accumulated about $2.5 billion in assets since launching in May 2011. Other factor ETFs in the PowerShares lineup include high beta (SPHB, EEHB, IDHB), and high quality (SPHQ, IDHQ).
Disclosure: No positions at time of writing.
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