Smart Beta Funds: A Comparative Analysis
Smart beta funds DVY and QDF
The iShares Select Dividend ETF (DVY) is a smart beta fund that seeks to generate regular income for investors. It aims to track the investment results of the Dow Jones U.S. Select Dividend Index. DVY is majorly invested in the utilities, consumer staples, and financial sectors. Lockheed Martin (LMT), Philip Morris International (PM), and CME Group (CME) are DVY’s top holdings. A similar smart beta fund that selects stocks on the basis of dividend history is the FlexShares Quality Dividend ETF (QDF). Wells Fargo & Company (WFC), The Home Depot (HD), and Apple (AAPL) are some of QDF’s top holdings.
Comparison with the VIX
In the above graph, DVY and QDF are compared to the CBOE (Chicago Board Option Exchange) Volatility Index (VIX). Both DVY and QDF have performed similarly in the market. The VIX, which is a measure of the overall implied volatility of the market, rises during a bearish market and falls during a bullish market. A fluctuation in the VIX has little effect on the performance of DVY and QDF. This is related to the fact that declaring dividends requires some manual activity and subjective thinking, whereas the VIX is entirely dependent on market trends.
No or minimal effect
DVY is smart beta ETF that selects stock on the basis of dividend payout history. Its primary objective is to seek regular income with the potential for long-term capital appreciation. It has generated good returns for its investors in the past. QDF has performed similarly. As discussed above, dividend-providing assets are minimally affected by VIX. In the final part of this series we’ll analyse the SPDR S&P 500 ETF ‘s (SPY) movement with respect to the VIX.
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