Even in this era of depressed interest rates and voracious yield hunting, it is possible for an exchange traded fund with heavy allocations to developed markets and a fat dividend yield to toil in obscurity.
It is not a criticism, but such is life for the Guggenheim Global Dividend Opportunities Index ETF (LVL) . LVL, which debuted in June 2007, tracks the S&P Global Dividend Opportunities NR Index and although it is advertised as a global ETF, the fund’s largest country weight is 17.7% to the U.S. That is followed closely by 17.5% to Australia.
Indicating that risk is not excessive with LVL, four of the ETF’s top-five country weights – Australia, Canada, Germany and Finland – have AAA credit ratings. Additionally, LVL’s standard deviation of 16.1% is not much higher than that of the MSCI World Index and slightly lower than the 16.4% found on the iShares MSCI EAFE ETF (EFA) . [A Global Dividend ETF With a 7% Yield]
Overall, European countries combine for about 26% of LVL’s weight, giving the ETF some leverage to the ongoing economic recovery there. The ETF’s Europe exposure is mixed between steady hands such as Germany and the U.K. and more notorious fare such as Italy and Spain. [An Unheralded ETF Way to Europe]
LVL’s source of allure stems from a trailing 12-month yield of 6.63%, according to Guggenheim data. The high yield is a payoff for perceived risk although the ETF is home to just one emerging market (Brazil) and is conservatively positioned at the sector level.
For example, telecom and utilities stocks combine for a third of LVL’s weight. That would be problematic if LVL were exclusively focused on U.S. equities given the sensitivity of those sectors to rising interest rates, but the bulk of the ETF’s telecom and utilities holdings are foreign. [Low Expectations for Utilities ETFs]
LVL’s U.S.-based holdings are not free of rate risk, though, as many are rate-sensitive real estate investment trusts (REITs). Some of the REITs found in LVL are mortgage REITs, which were smacked by soaring Treasury yields last year.
Investors should pay close attention to the sectors that dividend ETFs track. This can help avoid over or under exposure to various stocks and can help investors dodge volatility. For example, many dividend funds invest about 20% of their assets in the financial services sector, though in the case of LVL, that could be a good thing as European financial services continue to recover. The ETF’s weight to financial services is nearly 24%.
Guggenheim Global Dividend Opportunities Index ETF
Tom Lydon’s clients own shares of EFA.