ALPS’ GICS-Focused Payout ETF Goes Live
June 29, 2012
ALPS Advisors, the Denver-based financial services firm that focuses on asset servicing and asset gathering, today rolled out a dividend-focused ETF that’s designed to serve up higher dividend yield relative to other U.S.-large-cap indexes while keeping a diversified portfolio across all 10 sectors of the market.
The ALPS Sector Dividend Dogs ETF (NYSEArca: SDOG) picks the five highest dividend-yielding stocks in each of the 10 GICS sectors that make up the S&P 500, and equally weights them. The company computes yield based on the regular cash dividends paid over the previous 12-month period, divided by the share price.
SDOG has an annual expense ratio of 0.40 percent. GICS, the rubric the fund will use to define sectors, stands for Global Industry Classification Standard, and was devised by S&P and MSCI.
The fund is the latest to join a growing roster of dividend-focused strategies that cater to investors’ appetite for income at a time of increased market volatility and historically low interest rates. But performance can diverge significantly depending on how the fund goes about choosing its stocks and exposure, and often some of the highest-yielding funds are those with some of the lowest total returns.
In the end, many high-dividend-focused funds tend to underweight areas like technology, energy and financials in search of high yields, as IndexUniverse’s analyst Carolyn Hill recently pointed out in a blog.
SDOG’s all-inclusive sector allocation approach could mean that investors might be giving up some yield potential relative to other high-payout funds for the benefits of diversification.
Dogs Of The Dow
SDOG, which tracks the S-Network Sector Dividend Dogs Index, applies on a sector-by-sector basis the “Dogs of the Dow" theory, which is an investment strategy that calls for an annual review of the 10 Dow Jones industrial average stocks whose dividends are the highest fraction of their price and invest in those securities.
The fund follows that principle, but picks its holdings from the S&P 500 universe, which the company argues is a space where investors are less likely to run into financially troubled companies as they could by focusing on other large-cap benchmarks.
Ultimately, the idea is to not only put in an ETF wrapper a dividend-focused portfolio that is truly diversified on a sector-by-sector basis, but also to offer alpha potential.
“SDOG isolates the S&P 500 constituents with the highest dividend yield in their respective sectors providing the potential for price appreciation as market forces bring their yield into line with the overall market,” the company said in promotional materials about the new ETF.
At the end of March, ALPS managed more than $6.2 billion in assets and serviced more than $291 billion in client assets.
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