suggesting that dividend ETFs may be a solid play.
There are certainly plenty of options in this space too, as a number of providers have launched new dividend ETFs over the past few months. While the dividend ETF world is definitely crowded, RevenueShares clearly believes that there is some room left for competitors as the company has just launched a new income fund of its own, the Ultra Dividend ETF (NYSEARCA:RDIV).
RDIV in Focus
This new ETF looks to give investors a way to target income producing securities in the U.S. market, with a focus on weighting by revenue instead of market capitalization levels. This is done by tracking the Ultra Dividend Index, while the ETF will charge 49 basis points a year in fees for the exposure (also read 3 Excellent ETFs for Growing Dividends).
In total, the ETF will hold 60 stocks in its basket, all of which are in the S&P 900. The stocks are selected based on which 60 have the highest average 12 month trailing dividend yield in each of the previous trailing four quarters.
These 60 stocks are then weighted based on top line revenues instead of market capitalization, putting a focus on companies that do a great level of sales as opposed to those that have a big cap. This can skew a portfolio towards firms that have low profit-margins, and also away from momentum stocks that have moved sharply higher without a big change in their underlying fundamentals.
The portfolio of the ETF is focused on utilities (40%), telecoms (16.8%), and consumer staples (12.3%), while the top holdings include Lockheed Martin, AT&T, and Duke Energy. The portfolio also pays out a pretty solid yield of 4.9%, so it does look to be a good income destination as well.
How does it fit in a portfolio?
This ETF is an intriguing choice for investors seeking a new take on income investing. It also could be appropriate for investors seeking to apply the revenue-weighted model with an income focus, something that hasn’t really been available until now.
On the other hand, the ETF does look to be a little pricier when compared to other large cap-focused options, while it could be a bit more volatile. And as we discussed earlier, the fund could skew away from several key sectors—health care and technology combine to account for less than 10% of the total—so it may be a poor broad market play for some.
Competition and Bottom Line
Investors should also note that the product has a large amount of competition, from a number of funds. While there isn’t much in the way of revenue-weighted foes, there are several dividend-centric products out there to consider.
These include the Vanguard High Dividend Yield ETF (NYSEARCA:VYM), the iShares High Dividend ETF (NYSEARCA:HDV), and the WisdomTree LargeCap Dividend ETF (NYSEARCA:DLN), just to name a few. All of these funds have more than $1.5 billion in AUM, and plenty of volume too, so they could make RDIV’s quest for adding assets quite difficult (see4 Excellent Dividend ETFs for Income and Stability).
However, investors continue to embrace high yield products, especially if they offer up a new take on the space. RDIV does just that so this fund—should it show some level of outperformance and keep its yield near 5%– should have a decent shot at becoming a popular ETF as well.
This article is brought to you courtesy of Eric Dutram.