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In a difficult market environment for fixed income allocations, advisors and investors are seeking alternative sources of income, and many are turning to dividends as a solution. With the S&P 500 finally managing a turnaround for the month overall, investing in dividend-yielding equities looks increasingly more attractive for advisors and investors.
The S&P closed out March up for the first month this year, gaining 3.58% for the month while narrowing its year-to-date losses to -4.95%; adding in dividends brings it up to 3.71% for March, wrote Howard Silverblatt, senior index analyst and product management for S&P Dow Jones Indices in a recent paper.
“All 11 S&P 500 sectors were positive for the month (with 315 issues up and 81 up at least 10%), as the market traded past higher interest rates and inflation, with limited impact from the Ukrainian situation (though some attention is being paid to companies that may participate in an eventual rebuild),” explained Silverblatt.
Markets absorbed a confluence of pressures and information in the first quarter of this year, and while volatility has been marked, March saw a reduction of intraday volatility on the S&P 500, averaging 1.70% compared to 1.87% in February and 2.06% in January.
“The S&P 500 reversed course in March, as it adjusted to current and future events: Russia-Ukraine, seven possible interest rate hikes (with the potential of them not all being 0.25% each), and continued inflation—but potentially an end in sight (H1 2023),” wrote Silverblatt.
Investing in Dividends in Rising Rate Environments
Increasing interest rates are driving advisors and investors to consider alternative sources of income as bond allocations continue to experience outflows. One place that advisors are turning to in order to seek income is within dividends and dividend-yielding companies.
The KFA Value Line Dynamic Core Equity Index ETF (KVLE) follows a strategy of investing in higher-yield companies while diversifying in a way that a “theme” portfolio does not. The fund is a core equity portfolio of securities that are tilted to favor dividend yield, and it seeks to increase yield while avoiding investing solely in high-yield sectors and stocks.
KVLE is benchmarked to the 3D/L Value Line Dynamic Core Equity Index and utilizes optimization technology to emphasize securities with solid dividend yields that have the highest rankings in both Value Line Safety and Timeliness. KVLE’s beta target is between 0.8–1 compared to the S&P 500 based on forecasting models.
The fund uses a smart beta strategy in seeking more cost-efficient alpha as well as a risk-management strategy that seeks to limit the effects of major market declines while also being positioned to capture positive returns.
KVLE carries an expense ratio of 0.55%.
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