The Dow Jones Industrial Average closed above 50,000 for the first time on Feb. 6, but investors can be forgiven if they feel as though Mr. Market isn't presenting them with proper bull market vibes.
Employment data is weak, geopolitical risk is palpable, and artificial intelligence (AI) spending announcements are spooking even the most dedicated tech investors. Add it all up, and it's not surprising some investors are jittery and embracing low-volatility offerings.
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That category includes the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD 1.05%). This exchange-traded fund (ETF) is up 7.4% year to date, an advantage of more than 600 basis points over the S&P 500, and it hit a 52-week high on Feb. 6. More upside could be in store for this fund if growth stocks fall out of favor, and with that in mind, let's examine its highlights.
Low volatility with a dividend kicker
This high-dividend ETF doesn't employ an exotic strategy. Actually, its methodology is approachable for investors of all stripes. For those familiar with the popular Invesco S&P 500 Low Volatility ETF (SPLV 0.13%), think of the dividend fund as the payout counterpart to that venerable ETF.
Whereas the dedicated low volatility ETF targets the 100 S&P components with the lowest trailing 12-month volatility, the high-yield ETF goes a step further by focusing on the parent index's 50 highest-yielding stocks that were the least turbulent over the past year. This Invesco ETF delivers on the income pledge, sporting a 30-day SEC yield of 4.54%, or more than triple that of a basic S&P 500 ETF.
Not surprisingly, this fund's sector composition differs significantly from that of traditional broad-market funds. While any sector can exhibit favorable volatility traits at any given time, this ETF's dividend yield overlay leads to a lineup in which real estate, consumer staples, and utilities stocks combine for more than half the portfolio, which makes sense because those are high-yield sectors.
Another way of looking at this ETF is if market participants earnestly commit to sector rotation, say trimming tech exposure for more defensive or value fare, this fund will benefit. Its year-to-date performance confirms it already is.
NYSEMKT: SPHD
Key Data Points
For the skeptics out there wondering if this $3.27 billion ETF is too good to be true, rest assured. It avoids potential value traps by filtering out volatile companies that may be enduring financial strain that could lead to dividend cuts or suspensions.
More pros, one con with this ETF
Although this ETF is designed to lower risk while delivering above-average income, it's not risk-free. Here's one of the most significant risks tied to this fund: If growth stocks are in fashion, this ETF will lag the broader market.
That point shouldn't be glossed over, but another thing to acknowledge is that lower-volatility stocks have beaten their bumpier counterparts for decades, confirming that this ETF is suitable for long-term investors.
Enhancing that proposition is that this Invesco ETF pays monthly, not quarterly, as many rivals do. The annual fee of 0.30%, or $30 on a $10,000 investment, is fair when accounting for the monthly dividend and volatility buffer.
