Global X Funds, a New York-based provider of exchange-traded funds best known for its niche offerings, has launched the Global X SuperDividend US ETF (DIV). As the name suggests, the fund is a direct play on one prominent theme; the investors’ thirst for dividend and yield.
However, the new ETF features an additional source of appeal for the conservative investor; it plays on the soaring popularity of low volatility products. In short, it combines two highly popular styles – high dividends and low volatility.
Popularity of high income products have surged over the past couple of years as interest rates have hit rock-bottom, confining yield to fixed income instruments and savings products. Likewise, low volatility products have grown popular as investors sought protection from increasing market volatility caused by various factors including the European sovereign debt crisis, the global economic slowdown and the US political uncertainty over budget negotiations.
The performance tracker is the INDXX SuperDividend US Low Volatility Index, an equal-weighted benchmark designed to measure the performance of US-based companies that have a high dividend yield and low beta (low correlation with benchmark indexes like the Dow Industrials or the S&P 100).
The fund is well-diversified and has exposure in 50 securities with equal weightings, ensuring low exposure to single-company risk. Also by capping sector weights at 25 percent, DIV ensures the portfolio is not heavily overweight in a particular sector.
Real estate investment trusts (REITs) and utilities have the largest sector weight at 24 percent, followed by master limited partnerships (MLPs) and telecommunications, which receive weights of 18 percent and 12 percent respectively. The other sectors include consumer staples (8 percent), healthcare (6 percent), consumer discretionary (4 percent), industrials (2 percent) and technology (2 percent). No individual holding currently exceeds two percent.
A low-volatility filter removes stocks with betas in excess of 0.85 percent with respect to the benchmark to lower portfolio volatility. A beta less than 1 indicates the security is less volatile than the market benchmark. Additionally, DIV applies a second filter to exclude companies that are likely to cut dividends, as determined by the index provider.
All companies are reviewed on a quarterly basis and are liable to be removed from the index if they forecast a substantial dividend cut. The fund expects to pay monthly dividends.
To be eligible for the underlying benchmark, the holdings must have consistently paid dividends for the past two years and dividend yields for the trailing 12 months should be in the range of 1 percent to 20 percent. Current year dividend should be at least 50 percent of the prior year. Also the company must have a market capitalization of not less than $500 million with an average daily trading volume of at least $1 million over the past six months.
The fund has an annual expense ratio of 0.45 percent.
Since I favor low volatility products in this market environment, I will closely follow DIV for a few months to see how it holds up given the fickly state of the economy and bubble territory of the indexes. That will allow this fund to improve on trading volume and establish a track record with dividend payouts. If it’s worthwhile, I will do a follow up post.
Disclosure: No holdings
Contact Ulli