Eric Dutram: Global X is probably best known for its wide variety of commodity and country specific ETFs. These funds, like GXG for Colombia, or SIL for silver miners, are now among the most popular for the firm, as both have over $200 million in AUM.
However, by far the most popular ETF in the company’s lineup is the SuperDividend ETF (NYSEARCA:SDIV), which has close to $400 million in assets, roughly a fifth of Global X’s total AUM. This has clearly shown that investors, no matter what is happening in the broad market, are embracing yield strategies in droves for their portfolios.
This endless demand for high yielding securities is probably why Global X has looked to expand its lineup of ETFs in this space, this time with a fund targeting the U.S. dividend market. Following the success of the international-focused product, Global X has launched the SuperDividend U.S. ETF, offering up another high yielding choice in the ETF world.
DIV in Focus
This fund looks to zero in on the U.S. market, investing in 50 of the highest yielding stocks trading in America. The product will utilize an equal weight methodology across the stocks, while a sector cap of 25% will also be used in order to promote diversification (read 3 Excellent ETFs with more than 4% Yield).
Investors should also note that the dividend ETF expects to pay monthly distributions, and that all constituents are reviewed on a quarterly basis. Additionally, the product looks to charge 45 basis points a year in fees, a level that puts it in line with many other dividend ETFs on the market today.
It is important to remember that this fund does have some unique features that could help it separate from the pack in the U.S. dividend ETF world though. First, a low-volatility screen is applied in order to ensure that a lower risk portfolio is created, as stocks with a beta over 0.85 (against the S&P 500) will not be included.
Additional filters are also used in order to increase the safety even more, with one of the biggest ones being a screen to remove companies expected to cut dividends. Firms included must also have paid dividends consistently for the past two years, so dividend safety is clearly key for this ETF (see 4 Best New ETFs of 2012).
In terms of holdings, the fund skews towards traditional high yield sectors such as REITs (24%), Utilities (24%), and MLPs (18%). Other dividend stalwarts like telecoms, consumer staples, and health care round out the rest of the top six, giving the fund decent diversification across sectors.
“In an environment where people are seeking monthly income, the SuperDividend U.S. ETF offers convenient access to 50 high yielding companies in the US through one security,” said Bruno del Ama, chief executive officer of Global X Funds in a press release. “Based on the research we have conducted, we believe very high-yielding dividend stocks are generally overlooked and may play an important role in a portfolio.”
How does it fit in a portfolio?
This ETF could be an interesting choice for those seeking a broadly diversified play on the U.S. dividend market, which zeros in on high yielding stocks. It also could be a good pick for investors who are agnostic about how they obtain their yield in the U.S. market, and who do not have a strong company specific preference.
The fund could also make for a great play for investors who are concerned about market volatility and its impact on their portfolios. Going along with this theme of safety, DIV could be a solid pick for those who like investing in high yielding securities, but are always worried about dividend cuts, as this fund looks to mitigate some of those concerns.
On the other hand, thisdividend ETFmay not be appropriate for those who are already holding big positions in sectors like REITs, utilities, or MLPs, as these represent a big chunk of DIV’s portfolio. Additionally, trading volumes may be a little light in the beginning, and bid ask spreads could be relatively wide, depending on the types of REITs and MLPs that comprise the bulk of the portfolio.
Can it succeed?
If the popularity of SDIV is any guide, then yes, DIV could be a top choice for many investors. However, it is worth noting that the U.S. dividend ETF space is rife with competition, and that initial asset accumulation may be difficult (read Can You Beat These High Dividend ETFs?).
There are literally dozens of high yield products currently targeting American stocks, including several billion dollar funds. These include the Vanguard High Dividend Yield ETF (VYM) and the iShares High Dividend Equity Fund (HDV) , among countless others that have a bit less in invested capital, such as the somewhat similar (SPHD) .
These could pose as significant competitors to DIV and the fund’s quest to accumulate assets in this very popular, but competitive corner of the market. This new dividend ETF will have to find a way to differentiate itself based on its robust yield and safety measures in order to establish a beachhead and become another popular product in Global X’s lineup.