While dividend investments were quite shaky leading up to the taper, the Fed’s shocking decision to not curtail QE at all has breathed new life into the yield space. Now, securities in this segment appear to be back on track, leading many ETF issuers to push out new income-centric investments as well.
Just in the past month, investors have seen RiverFront put out a new Strategic Income ETF (RIGS), while RevenueShares launched an Ultra Dividend ETF (RDIV). In continuing with this trend, ProShares has also put out an income fund, the S&P 500 Aristocrats ETF (NOBL) in order to compete in this corner of the market as well (see No Taper? No Problem for These Dividend ETFs).
NOBL in Focus
NOBL continues ProShares’ recent trend of expanding into the unleveraged ETF world, marking the third such fund in the space for the ETF provider. However, it marks just the second unlevered equity ETF for the company this year, and it also pushes the company deeper into the plain vanilla ETF space, as many of its other unleveraged products included volatility funds or bond ETFs.
Now, however, ProShares will be a competitor in the ultra-fierce large cap dividend market, charging investors 35 basis points a year in fees. The product will track the S&P 500 Dividend Aristocrats Index for its exposure giving access to just over 50 companies in total (see 3 Excellent ETFs for Growing Dividends).
This benchmark looks to focus on S&P 500 components that have increased dividends every year for at least 25 years, giving the fund a focus on companies that have among the strongest balance sheets and put increasing yields at the top of their priorities. However, it is important to remember that many times these companies don’t pay out the largest yields, though the current index has a benchmark yield of nearly 2.6%.
It is also worth noting that the benchmark will contain a minimum of at least 40 stocks, equally weighting among which ever companies meet the criteria. No single sector can make up more than 30% of the index, while current top holdings include consumer staples (23.7%), industrials (15.4%), and materials (13.3%).
“Consistent dividend growth is considered an important indicator of a company’s financial strength,” said Michael Sapir, Chairman and CEO of ProShare Advisors LLC, ProShares' investment advisor. “By that measure, the Aristocrats are the strongest of the strong in the S&P 500—the companies with the best track records of increasing dividends.”
How does it fit in a portfolio?
This ETF might be an interesting choice for investors seeking diversified large cap exposure, with a tilt towards dividends. Those seeking safety might also be well-served in this product , as the focus on the aristocrats does tend to skew the portfolio to less volatile sectors and companies (read Are There Really High Dividend Low Risk ETFs?).
The fund may not be appropriate, however, for those seeking a bunch of high growth names. The average market cap here is over $50 billion, so growth might be hard to come by. Additionally, if you are truly looking for yield, there are plenty of ETFs out there that offer up income levels above 3%, potentially putting funds like NOBL to shame on the income front.
Competitors and Bottom Line
For those curious about the similar options in this corner of the market, there are two that stand out above the rest; the Vanguard Dividend Appreciation ETF (VIG) and the SPDR S&P Dividend ETF (SDY). These two both track indexes of ‘aristocrats’ and have assets under management over $10 billion each.
While they have a slightly different focus—VIG looks at companies with a history of increases over the past decade, and SDY looks at the highest yielders with a quarter century of increases—these two could be fierce competitors for NOBL (also see 3 Red Hot Dividend ETFs).
Given this, the new ProShares fund might have a bit of difficulty in building up assets, though with some outperformance and a solid yield, it could find a decent sized niche, as investors clearly have a ton of interest in this corner of the dividend ETF world.
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