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Dividend and Low Volatility S&P 500 Investments

It's been a tough start of the new year for the S&P 500 index, with a 7.9% decline (as of February 5). This has dragged down the performance of the largest equity ETFs SPDR S&P 500 (SPY 188 Overweight). However, the year-to-date performance of certain factor-focused smart-beta ETFs is relatively bright despite being tied to subsets of the same S&P 500 index.

PowerShares S&P 500 Low Volatility (SPLV) tracks an index consisting of the 100 least volatile stocks within the broader S&P 500 index. This index is rebalanced and reconstituted on a quarterly basis, to regularly provide exposure to lower-risk securities.

As of January 2016, financials (27% of assets), consumer staples (22%), industrials (16%), and utilities (12%) were the largest sectors; peer iShares MSCI USA Minimum Volatility (USMV 40 Overweight), tied to a different parent index, has sector bands; its recent sector exposure was financials (22%), health care (20%), information technology (15%), and consumer staples (15%).

Financials (27% of assets), consumer staples (22%), industrials (16%), and utilities (12%) were the largest sectors.
  Top-10 holdings for SPLV include Campbell Soup (CPB) and Coca-Cola (KO). In contrast, relative to the S&P 500 index, exposure is limited to information technology (2.8%) and there are currently no energy holdings. SPLV, which has a 0.25% expense ratio, was down only 3.3% year to date through February 5.

Performance of certain factor-focused smart-beta ETFs is relatively bright.
 Meanwhile, ProShares S&P 500 Dividend Aristocrats (NOBL) currently holds 50 constituents of the S&P 500 index that have raised their dividends for the last 25 consecutive years. The ETF is rebalanced on a quarterly basis, though companies enter or exit NOBL on an annual basis. Some constituents, including Hormel Foods (HRL) and Johnson & Johnson (JNJ), hiked dividends for more than 45 consecutive years.

As of January 2016, relative to SPLV, exposure to consumer staples stocks (27%) and to energy (4%) was higher, while to financials (11%) and to utilities (2%) was lower. NOBL, which has a 0.58% gross expense ratio (0.35% net expense ratio), declined 3.3% year to date.

S&P Global Market Intelligence has research and rankings on approximately 1,100 ETFs updated daily. To learn more, visit http://trymsatoday.com.

A third offering, PowerShares S&P 500 Low Volatility High Dividend (SPHD), combines two defensive factors. The ETF holds the 50 least volatile, high dividend yielding securities in the S&P 500 index and is rebalanced on a semi-annual basis. The dividend factor recognizes companies for their yield and not the longevity of payments.

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 As such, it is no surprise that the utilities sector (25% of assets) is overweighted relative to other S&P 500 index based products, while health care (7%) is underweighted. Financials (19%) and consumer staples (17%) are other heavily weighted sectors. HCP Inc. (HCP) and TECO Energy (TE) are two of the holdings.

SPHD has a 0.30% expense ratio and has been the strongest performer of the trio. SPHD's performance was the strongest of the three ETFs, up 0.5% year to date.

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Feb 09, 2016
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