The worlds of dividend ETFs and actively-managed ETFs have collided with the recent launch of the AdvisorShares Athena High Dividend ETF (DIVI).
AdvisorShares was an early pioneer in actively managed ETFs, and its stable of ETFs includes some of the market’s most innovative, such as the Ranger Equity Bear ETF (HDGE) — co-managed by short seller extraordinaire and fellow Dallas resident John DelVecchio — and the TrimTabs Float Shrink ETF (TTFS), an ETF that specializes in companies aggressively buy back their own shares.
But what makes DIVI different from the existing dividend ETFs on the market, such as the Vanguard Dividend Appreciation ETF (VIG) or the iShares Select Dividend ETF (DVY)?
DIVI – A New Look at an Old Style
With the Athena High Dividend ETF, AdvisorShares is bringing on board Thomas Howard, a former academic turned money manager superstar.
I reviewed Howard’s book, Behavioral Portfolio Management, in May, and I consider him something of an eccentric genius. Howard runs a focused, high-conviction portfolio in which he intentionally forgets the names of holdings and the prices paid as a means of remaining emotionally detached. Although his approach is unusual, it’s hard to argue with results: Howard reports generating annualized returns of 29.2% in the five years to April 30 in his aggressive growth portfolio.
DIVI itself is a global ETF, spanning American, developed-international and emerging-market equities. Its second-largest portfolio holding is Telefonica Brasil (VIV), and it also holds Australian Macquarie Infrastructure (MIC), Chilean Banco de Chile (BCH) and British Tesco (TSCDY), among several other non-U.S. holdings. DIVI specifically lists “global diversification” as part of its investment mandate.
Secondly — and virtually uniquely among dividend ETFs — DIVI includes equity REITs, mortgage REITs, master limited partnerships (MLPs), closed-end funds and business development companies (BDCs) in its investment universe.
And finally, unlike any other dividend ETF I have seen, DIVI employs a guru-following strategy that makes it similar in principle to Global X Top Guru Holdings Index ETF (GURU) and the AlphaClone Alternative Alpha ETF (ALFA), but with a far more active approach. DIVI uses Howard’s behavioral research to identify the “high conviction” picks of active mutual fund managers, then selects high-dividend payers from the screen. DIVI then diversifies across sector, strategy and country to reduce risk.
I am a big fan of Howard’s research, and I consider DIVI an interesting spin on the dividend ETF.
With 40 holdings, Athena High Dividend is diversified without being overdiversified, and its broad range of asset classes from which to choose its investments makes it very different from other dividend ETFs.
With a net expense ratio of 0.99%, DIVI is a little on the expensive side for an ETF … but certainly not excessive for an actively managed fund.
Before recommending Athena High Dividend outright, I would like to see how it performs for a few quarters and to get a feel for the level and consistency of its dividend. But overall, I like DIVI and recommend that readers at least give it a look.
One final tip: This is the dirty little secret of ETFs. Managers are required to disclose their holdings daily. So, if you like the research that goes into an ETF but don’t feel like paying the management fee — or if you simply want to cherry-pick the very best individual holdings — you can use its holdings list as a high-quality stock screener.
And DIVI has a lot of interesting holdings you might not have seen before in your research.
Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long VIG and DVY. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays.
