New ETF Promises 'Super' Dividends
NEW YORK ( TheStreet) -- In 2011, Global X launched its Super Dividend ETF (SDIV), a globally allocated fund that seeks a high yield for its shareholders. SDIV has a trailing yield of 8% and has attracted $383 million in assets. Trying to build on that success, the firm launches the Global X Super Dividend US ETF (DIV) this week, a domestic version of the globally oriented SDIV.
DIV will equal-weight 50 stocks at 2% each. The underlying INDXX Super Dividend U.S. Low Volatility Index has an indicated yield of 7.5%, which after accounting for the fund's 0.45% expense ratio means the fund could yield 7.05%. However, it is important to note that with all ETFs, there can be no assurance of how much future dividends will be. The yield could be more or less than 7.05%.
Stocks will be chosen based on their respective dividend yields and there will also be a volatility filter to the process. Constituent holdings will have a beta of 0.85 or lower, where the beta of the S&P 500 is 1.00. A stock with a beta of less than 1.00 is thought to be less volatile than the index.
Where the objective is high yield and low volatility, there are several sectors or in some cases niches with very large weightings in the fund. The methodology caps any market segment at 25% of the fund but REITS comprise 24% of DIV as do utilities. Master Limited Partnership account for another 18% of the fund, followed by telecom at 12% and consumer staples at 8% before getting smaller from there.
In the last couple of years several ETF providers, including iShares, PowerShares and SPDR, have issued funds that are either dividend-centric one way or the other, low volatility or both. With the S&P 500 is close to a level first reached in 2000, investors are questioning their involvement with stocks. This has lead to a new focus on dividends and seeking ways to alter the volatility profile of their portfolio compared to tracking the S&P 500.
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