Global X SuperDividend US ETF combines high dividends and low volatility

Mar 12th, 2013 | By | Category: Equities

The Global X SuperDividend US ETF (DIV) is the latest fund to be launched by Global X Funds, a New York-based provider of exchange-traded funds (ETFs). The NYSE Arca-listed fund provides exposure to 50 high-yielding, low-beta equity securities traded in the United States.

Global X SuperDividend US ETF (DIV) combines high dividends and low volatility

The newly launched Global X SuperDividend US ETF (DIV) provides exposure to 50 high-yielding, low-volatility equity securities in the United States.

The fund combines two highly popular styles – high dividend and low volatility – and complements Global X Funds’ existing high dividend ETF, the Global X SuperDividend ETF (SDIV), which launched in 2011 and has accumulated assets of $384 million.

High income ETFs have proved popular over the past couple of years as interest rates have languished at record-low levels, reducing the yields available on savings products and fixed income bonds.

Similarly, low volatility ETFs have done well as investors have sought sanctuary from the market turmoil inflicted by factors including the global financial crisis, European sovereign debt crisis and US fiscal cliff negotiations. A reflection of this is the success of iShares’ suite of minimum volatility ETFs, which have gathered more than $4 billion in assets less than a year and half after their introduction.

However, despite the impressive inflows these products have received, many investors are only just beginning to recognise the potential opportunities present in the high-dividend space and understand the risk-adjusted performance benefits of low-volatility equities. This fund, which commingles these two fashionable themes, is likely to appeal to investors.

The fund is linked to the performance of the INDXX SuperDividend US Low Volatility Index, an equal weighted index designed to measure the market performance of companies in the United States that have a high dividend yield and low beta. INDXX is a boutique index provider with offices in New York, London and Gurgaon, India.

By equal weighting across a diverse group of 50 securities, investors have less exposure to single-company risk.  Sector caps of 25% are used to ensure that the portfolio is not heavily overweight in a particular sector and to provide an additional layer of diversification.

A low-volatility filter, which removes stocks with a beta in excess of 0.85 with respect to their local country benchmark, is used in an effort to further dampen the volatility of the portfolio. Additional filters are applied to exclude companies that are most likely to cut their dividends, as determined by the index provider. The dividend filter stipulates that the trailing 12-month dividend yield of all constituents should be in the range of 1% – 20% and each constituent should have paid dividends consistently for the last 2 years and the current year dividend should be greater than or equal to 50% of the previous year.

The index offers investors exposure to a broad group of industries:  REITS (24%), Utilities (24%), Energy MLPs (18%), Telecommunications (12%), Consumer Staples (8%), Health Care (6%), Consumer Discretionary (4%), Industrials (2%), and Technology (2%).

Bruno del Ama, chief executive officer of Global X Funds, said: “In an environment where people are seeking monthly income, the SuperDividend US ETF offers convenient access to 50 high-yielding companies in the US through one security. Based on the research we have conducted, we believe very high-yielding dividend stocks are generally overlooked and may play an important role in a portfolio.”

The fund comes with an expense ratio of 0.45% and expects to pay monthly dividends.

The new Global X ETF is not the first to combine low volatility with high dividends. Other funds capitalising on these hot themes include the PowerShares S&P 500 High Dividend Portfolio ETF (SPHD), which tacks the S&P 500 Low Volatility High Dividend Index, and the EGShares Low Volatility Emerging Markets Dividend ETF (HILO) linked to the INDXX Low Volatility Emerging Markets Dividend Index.

Thus far, the fusion of low volatility and high dividends is yet to reach the European market. However, if the strategies prove successful in the US, it’s likely to be just a matter time before similar products are rolled out in the UK and across Europe. Standalone low volatility and high dividend ETFs are available in various guises from all the main providers.

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