ETF Developments CEO Tom Lydon mentioned the SmartETFs Dividend Builder ETF (DIVS) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Present.
This ETF affords publicity to small cap U.S. shares that keep engaging dividend yields, making it one in every of many instruments obtainable to traders trying to improve the present returns delivered from the fairness aspect of their portfolios. DIVS can be utilized in a number of alternative ways: this ETF is perhaps an interesting short-term tactical instrument for these trying to shift holdings towards safer dividend shares, or may be used as a core holding instead of a extra conventional small cap fund in a long-term portfolio.
DIVS supplies a dividend technique that targets each sturdy fundamentals and dividend progress over time. Conventional mounted revenue comes with increased dangers and decrease yields within the present market surroundings.
The normal rationale for utilizing mounted revenue property has been eroded as yields are at all-time lows, correlation is increased, and plenty of are actually uncovered to rising fee dangers. With yields so low, the risk-return relationship is backward. There’s solely about 1% of room for rates of interest to go down, and so they can completely go up.
The Federal Reserve has kind of exhausted its toolkit with rates of interest already at historic near-zero lows. Consequently, conventional mounted revenue traders are actually uncovered to larger rate of interest danger, as charges are prone to tick increased.
The U.S. Combination Bond Index exhibits a 1.39% yield, as in comparison with the S&P 500’s 1.32% yield. Moreover, in wanting on the previous 35-year-average annual returns, the Agg generated a 6.16% return, as in comparison with the S&P 500’s 10.86% return.
A Dividend Builder Technique
Divided-paying corporations can, over the long-term, present a possible inflation hedge. Dividend methods specializing in excessive dividends and a historical past of dividends are flawed since they typically fail to establish which components are producing these dividends. As a substitute, dividend-growing corporations generate sturdy free money flows, have administration centered on creating shareholder worth, present a disciplined use of money, include high-performance expectations, and possess built-in worth with traditionally low volatility.
Moreover, dividend growers have traditionally exhibited the bottom danger by the usual deviation of returns, in comparison with dividend payers, highest-yield dividend payers, and non-dividend payers. In the meantime, dividend growers have proven comparatively comparable returns to non-dividend payers.
DIVS has additionally exhibited improved drawdowns during times of heightened volatility. The fund captured solely 72% of market draw back on common within the 5 corrections seen because the fund launched on the finish of 2010.
Take heed to the complete podcast episode on DIVS:
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