The newly launched U.S. large-cap value tracker fund, AAM S&P 500 High Dividend Value ETF (SPDV, Financial), from Advisors Asset Management is maintaining its competitor outperformance with the most recent dividend payable helping to contribute to its overall total return. The exchange-traded fund was launched in November 2017 as a new income option in the U.S. large-cap value space. The ETF uses a tracker fund or smart beta approach, which seeks to replicate a customized smart beta index benchmark in the S&P 500 Dividend and Free Cash Flow Yield Index managed by Standard and Poor’s.
SPDV and the S&P 500 universe
SPDV is a leading rival to competitor ETFs in the S&P 500 universe that focus on dividends. As of Aug. 8, it is substantially outperforming its primary competitor, the SPDR S&P 500 High Dividend ETF (SPYD, Financial).
Sources: Morningstar, S&P and ETFdb.com; * returns of the index
SPDV has a year-to-date return of 7.04%, which includes the most recent dividend paid on Aug. 6 of 5.4 cents. The ETF pays a monthly dividend, payable around the first of each month. In 2018, the dividend is averaging 6.5 cents. For the trailing 12 months, the fund has an estimated dividend yield of 2.89%.
SPDV’s performance is lagging just behind the return of the S&P 500 for the year. For the year, the SPYD ETF has a return of 7.93% representing the broad market.
In July, the S&P 500 reported a return of 3.60% with year-to-date return of 5.34% through month end. The S&P 500 is outperforming the Dow Jones Industrial Average and the S&P Mid-Cap 400. By capitalization, the small-cap sector is leading the broad market in 2018 with a return of 12.30% for the S&P 600 Small-Cap Index through the July month end. Across the broad market, equities have been helped by lower tax rates on corporations as a result of the Trump administration’s tax reform. Meanwhile, higher interest rates, fueled by the Federal Reserve’s monetary policy plans, have slightly detracted from large-cap equities and equities in general due to some affects from risk-off investing advantages.
S&P 500 Dividend and Free Cash Flow Yield Index
As a tracker fund, SPDV seeks to replicate the holdings and return of the S&P 500 Dividend and Free Cash Flow smart beta index. SPDV pays a monthly dividend, which helps to improve the total return of the ETF.
The S&P 500 Dividend and Free Cash Flow Index uses a unique smart beta approach that integrates customized quantitative analysis in order to screen for the S&P 500 stocks with superior dividend and free cash flow attributes. Stocks in the ETF and index are rebalanced semiannually to minimize active management and trading costs, leaving SPDV with an annual expense ratio of 29 basis points.
At each rebalancing, S&P considers a universe of S&P 500 stocks that have a positive dividend yield and positive free cash flow. Stocks must also meet a threshold for market capitalization and liquidity.
SPDV and the Dividend and Free Cash Flow Yield Index provide their unique advantage through a customized scoring system that ranks each eligible security based on its dividend and free cash flow. To provide for diversification, the index chooses the five highest-ranked securities in each market sector with stocks equally weighted across the entire Index.
SPDV is intended for income investors who also seek value characteristics. As such, it can be an ideal holding for long-term capital appreciation portions of a total portfolio. The dividend and free cash flow combination builds on the notion that dividend-paying companies are often more stable long-term value investments due to the higher and more consistent levels of cash flow they generate.
Disclosure: I own shares of SPYD and SPDV.
