The idea of tapering by the Federal Reserve did not compel investors to ditch dividend ETFs. Even as yields on 10-year Treasuries spiked almost 31% over the three-month period ending September 17, investors continued to put cash to work in dividend ETFs, some which have consistently sported dividend yields far below what was offered by Treasuries.
For example, from May 22 through September 17, investors poured $901 million into Vanguard Dividend Appreciation ETF (VIG), which yields just 2.16%. What the idea of tapering did do was cause capital erosion in previously prized income-generating asset classes and sectors. Prior to the Fed’s no tapering announcement Wednesday, MLP and REIT ETFs had suffered at the hands of rising rates. Dividend ETFs heavy on consumer staples and utilities stocks did not look much better. [Why Dividend ETFs Can Still Work]
With tapering a thing a of the past and the Fed’s foot still forcefully on the easy money pedal, it could time for dividend ETFs with exposure to rate-sensitive sectors to shine again. The PowerShares S&P 500 High Dividend Portfolio (SPHD) is one ETF with which to play that theme.
SPHD, which is 11 months old and has $138 million in assets under management, combines two previously beloved ETF themes: low volatility and high dividends. The fund tracks the S&P 500 Low Volatility High Dividend Index. That index “is composed of 50 securities traded on the S&P 500 Index that historically have provided high dividend yields and low volatility,” according to PowerShares.
SPHD’s October 2012 debut was well-timed. The fund came to market just weeks before the 2012 presidential election and at a time when investors were embracing low volatility funds as well as scouring for yield due to record low interest rates. Yields on 10-year Treasuries were just 1.86% the day SPHD debuted, 100 basis points below Tuesday’s closing yield. [High Dividends and Low Volatility: Can it Work in an ETF?]