Parsing through the universe of U.S. dividend ETFs is becoming increasingly taxing if for no other reason than that the universe continues to grow.
For better or worse, a rising number of dividend ETFs also means an increasing number of methodologies underlying these funds. Gone are the days when payout funds were built primarily by components’ yield or length of dividend increase streaks. [Different Ways to Dividend ETFs]
Sometimes, change is a good thing, as highlighted by the FlexShares Quality Dividend Defensive Index Fund (QDEF) . QDEF debuted in December 2012 along with the FlexShares Quality Dividend Index Fund (QDF) and the FlexShares Quality Dividend Dynamic Index Fund (QDYN) . QDF is the one of the three that has really caught on with investors, having grown to $413 million in assets under management. [Dividend ETFs That Beat Rising Rates]
That does not mean QDEF merits its overlooked status. Not with a 27% gain since inception and not with an emphasis on defensive, one that should prove useful in volatile market environments.
Defensive does not mean boring or excessive interest rate risk with the $51.6 million QDEF. Consumer staples, utilities and telecom names combine for less than 21% of the ETF’s weight, but the fund manages a beta of just 0.92, according to FlexShares data.
Although QDEF is positioned as a defensive income option, the ETF’s name arguably belies its utility as a dividend growth play. Financial services and technology are QDEF’s two largest sector weights, combining for over a third of the fund’s sector weight exposure. That is an important fact to consider because those are two of the leading contributors to S&P 500 dividend growth over the past several years. [Fight Inflation With Dividend Growth ETFs]
No holding accounts for more than 4.3% of QDEF’s weight. Top-10 holdings include six Dow components as well as Wells Fargo (WFC) and Apple (AAPL). Four of the 10 largest U.S. dividend payers in dollar terms – Exxon Mobil (XOM), Apple, Wells Fargo and Pfizer (PFE) – are top-10 holdings in QDEF.
FlexShares Quality Dividend Defensive Index Fund
Tom Lydon’s clients own shares of Apple and Pfizer.