(NYSEARCA: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 (NYSE:WIN) 3%, Pitney Bowes (NYSE:PBI) 3%, and CenturyLink (NYSE: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% (NYSEARCA: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).
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