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Dividend ETF That Screens Out Volatile Stocks

Posted by D4L | Monday, September 17, 2012 | | 0 comments »

Dividend-focused exchange traded funds have been all the rage as concern over market volatility and low yields in the bond markets pushed investors to the equities side for income. For instance, the iShares High Dividend Equity Fund (HDV) has gathered almost $2.1 billion in assets since it began trading on March 29, 2011. HDV has a 0.40% expense ratio and a 3.54% 30-day SEC yield. The iShares HDV ETF tries to reflect the performance of the Morningstar Dividend Yield Focus Index, which emphasizes low-volatility, qualified dividend-producing stocks.

"HDV is fundamentally a bet that tortoises beat hares," according to Morningstar analyst Samuel Lee. "The evidence is supportive: low-volatility stocks have had better risk-adjusted returns than high-volatility stocks in most markets studied." Consequently, the ETF has a heavy weighting toward non-cyclical, defensive sectors. For instance, health care is 29.1%, consumer goods is 21.4%, telecom is 18.4% and utilities is 16.2%.

Source: Seeking Alpha

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