Analyst Blogs
Game-Changing S&P 500 High-Div/Low-Vol ETF
October 19, 2012
PowerShares Reinvented?
I recently blogged about how it’s increasingly becoming difficult for issuers to launch $1 billion ETFs in a saturated market where every niche looks to be covered.
Since January 2011, there have been only four new ETFs that have surpassed the billion-dollar mark. Of those four, two have been PowerShares funds—the PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) and the PowerShares Senior Loan Portfolio (NYSEArca: BKLN).
PowerShares certainly looks to be coming on strong in recent years, and it’ll be interesting to see if it can add another fund to that exclusive billion-dollar club with SPHD.
Looking Ahead
SPHD has a few hurdles ahead of itself. In the aftermath of the European Central Bank bond buying and the Fed’s QE3 announcements, it’ll be interesting to see if the low-volatility fund craze since the launch of SPLV in May 2011 has faded somewhat.
The U.S. high-dividend ETF space is also very crowded, with total assets over $45 billion parked in more than 15 U.S.-focused ETFs that specifically select their constituents based on dividends.
An important takeaway is also that first and foremost, SPHD is a high-dividend fund, and the volatility component is secondary. As mentioned earlier, it first eliminates 425 securities from the S&P 500 Index strictly based on dividend yield.
Still, SPHD is certainly the first of its kind and looks like it could be a game changer. I certainly like what I’m seeing.
I think as an investor, we’re in uncharted waters with the massive fiscal deficits from much of the developed world. With central banks throwing in everything they have to help keep markets afloat, I can see volatility being a continued theme.
Plus, with rates at home being so low, searching for higher yield in equities still makes sense. According to S&P’s index fact sheet, the index is yielding well over 4 percent.
If I had to take a guess, even in this crowded space, SPHD will be a big hit. And despite some challenges it faces, I still expect SPHD to do just fine.
At the time this article was written, the author had no positions in the securities mentioned. Contact Dennis at dhudachek@indexuniverse.com.
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