Hundreds of new exchange-traded funds have come to market since the start of 2015. With advisors and investors still searching for more income and yield in a low-interest-rate world, it is not surprising that issuers of exchange-traded funds are obliging with more new dividend ETFs.
Dividend ETFs fall under the jurisdiction of smart beta, one of the fastest-growing corners of the ETF universe. At the end of the third quarter, smart beta ETFs, including dividend products, listed around the world had about $347 billion in combined assets under management. That is good for approximately 10% of all ETF assets.
As is the case with many new funds, rookie dividend ETFs face entrenched competition and it usually takes new offerings, of any genre, a while to catch on with investors. That likely explains why new dividends ETFs are increasingly refined, aiming at highly targeted areas of the dividend universe.
None of these traits should imply a new fund does not merit consideration for your income-generating watch list. In fact, despite their youth, some of these ETFs could be excellent additions to income investors’ portfolios in the near-term. Here are a few suggestions.
New Dividend ETFs: Legg Mason Low Volatility High Dividend ETF (LVHD)
Expense ratio: 0.3% per year, or $30 on a $10,000 investment.
SEC Yield: 3.4%
The Legg Mason Low Volatility High Dividend ETF (NYSEARCA:LVHD) debuted in December and has acquitted itself pretty well, gathering nearly $95 million in assets since coming to market. As its name implies, LVHD focuses on two themes that have been hot in 2016: dividends and the low-volatility factor.
This new dividend ETF follows the QS Low Volatility High Dividend Index with the objective of generating dependable dividends from low-volatility stocks. With those objectives, a deeper look into LVHD reveals some predictable decisions, but that is not a bad thing. For example, this dividend ETF is primarily a large-cap fund.
The weighted average market value of LVHD’s holdings is $65.6 billion and over 56% percent of the stocks in its lineup have market values of $25 billion to $50 billion or over $50 billion.
Also not surprising are LVHD’s sector weights. Combine low volatility and dividends and the outcome usually means significant allocations to utilities and consumer staples stocks. Those sectors are LVHD’s largest and third-largest sector weights, representing nearly 36% of the new dividend ETF’s weight.
Top 10 holdings include Procter & Gamble Co (NYSE:PG) and International Business Machines Corp. (NYSE:IBM), both members of the Dow Jones Industrial Average.
New Dividend ETFs: Fidelity Dividend ETF For Rising Rates (FDRR)
Expense ratio: 0.29%
SEC Yield: 3.4%
A lot of ETFs claim to offer protection against rising interest rates, and some do, whether by intent or incident. The Fidelity Dividend ETF For Rising Rates (NYSEARCA:FDRR) is one of a small number of ETFs that comes right out and says “Buy me if you’re worried about hawkish moves from the Federal Reserve.”
This new dividend ETF is part of a broader suite of smart-beta funds unveiled by fund giant Fidelity last month. To its credit, FDRR is off to a good start, having raked in $20.5 million in assets as of the end of the third quarter.
This new dividend ETF tracks the Fidelity Dividend Index for Rising Rates, which “is designed to reflect the performance of stocks of large and mid-capitalization dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields.”
Knowing that FDRR is designed to thrive if borrowing costs rise, it is not surprising that rate-sensitive utilities and telecom stocks combine for less than 6% of the new ETF’s weight and are two of the three smallest sectors in the new fund.
Cyclical sectors often perform well in rising rate environments. Enter FDRR with a combined tilt of about 46% to cyclical technology, financial services and consumer discretionary names. Top holdings include Johnson & Johnson (NYSE:JNJ) and Apple Inc. (NASDAQ:AAPL).
New Dividend ETFs: WisdomTree Emerging Markets Dividend Fund (DVEM)
Expense ratio: 0.32%
SEC Yield: 3.2%
Not all new ETFs get the benefit of good timing, which can make the climb toward investor acceptance that much hard. The same cannot be said of the WisdomTree Emerging Markets Dividend Fund (BATS:DVEM). This new dividend ETF debuted in April, and with emerging markets equities experiencing a rebirth this year, DVEM can indeed be deemed “well-timed.”
DVEM can hold stocks from the 17 following developing economies: Brazil, Chile, China, Czech Republic, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.
DVEM follows the WisdomTree Emerging Markets Dividend Index, which is more than nine years old. So although DVEM is a new dividend ETF, its underlying index has some seasoning. In its lifespan, the WisdomTree Emerging Markets Dividend Index has topped the MSCI Emerging Markets Index.
This ETF allocates almost a third of its lineup to Taiwan and China. That can be a plus because those countries have two of the most favorable dividend policies in the emerging world. Top holdings include Samsung (OTCMKTS:SSNLF).
At the time of this writing, Todd Shriber did not own any of the aforementioned securities.