Invesco PowerShares expands suite of high div low vol ETFs

Dec 7th, 2016 | By | Category: Equities

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Invesco PowerShares has launched two new exchange-traded funds, each honing in on two sources of risk and return that underpin smart beta strategies. The ETFs track international developed and US small-cap stocks while tilting their portfolios towards greater exposure to high dividend and low volatility characteristics, two proven long-term drivers of outperformance.

Invesco PowerShares expands suite of high div low vol ETFs

Dan Draper, Managing Director, Global Head, Invesco PowerShares.

Such funds have grown in popularity in recent years as government stimulus across Asia, Europe and the United States have pushed bond yields to historically low levels and in certain circumstances into negative territory. They may suit investors searching for a higher level of income than lower yielding fixed income investments if the investor is willing to take on additional risk.

Low volatility strategies have also experienced a spike in popularity as investors seek new tools to deal with increasing volatility levels in equities markets caused by the US presidential election, uncertainty over the future course of interest rates, and potential fallout from Brexit.

The strategy looks to blend high dividend payers with a low volatility screen, providing investors with an income buffer with added defensiveness through investing in names that have demonstrated less sensitivity to market movements.

“Blending factors can be a key to unlocking their diversification power,” said Dan Draper, Global Head of PowerShares by Invesco. “Combining high dividend and low volatility factors in our two newest ETFs may also provide investors with more defensive access to equity income in the face of uncertain markets.”

The PowerShares S&P International Developed High Dividend Low Volatility Portfolio (BATS: IDHD) seeks out the highest-income-producing equities in international developed markets, and then incorporates a low volatility overlay. The fund tracks the S&P EPAC Ex-Korea Low Volatility High Dividend Index.

The index’s methodology initially selects the 300 highest dividend paying companies within the S&P Developed Ex-US BMI Large & Mid-Cap Index, a comprehensive benchmark including stocks from developed markets excluding the United States. The second screen chooses the 100 securities that have demonstrated the lowest volatility over the past 12 months.

In order to achieve a relatively high dividend yield, the index constituents are weighted by dividend yield. At each rebalancing, the weight for each index constituent is constrained between 0.05% and 3.0%, and the weight of each GICS Sector is capped at 25%.

As of 5 December 2016 the ETF’s largest country exposures are to Singapore (16.4%), Australia (14.8%), the UK (11.3%), New Zealand (10.6%) and Hong Kong (10.4%). Its largest sector exposures are utilities (19.1%), industrials (14.7%), real estate (14.6%), telecommunications (14.1%) and financials (10.7%). The largest single exposure is to Air New Zealand (2.5%).

The PowerShares S&P SmallCap High Dividend Low Volatility Portfolio (BATS: XSHD) also seeks out the highest-income-producing equities, but instead looks at US-listed small cap companies. It tracks the S&P SmallCap 600 Low Volatility High Dividend Index.

The initial screen selects the highest 90 dividend-yielding companies in the S&P SmallCap 600 Index and the final screen selects the 60 securities that have demonstrated the lowest realized volatility over the past 12 months.

Constituents are also weighted by dividend yield.

The largest sector exposures of the ETF are real estate (15.6%), consumer staples (11.6%), industrials (10.7%), utilities (10.5%) and financials (10.5%). The largest single holdings are Greenhill & Co (4.6%) and Capstead Mortgage (3.0%).

Each fund is offered with a total expense ratio (TER) of 0.30%.

The launch of these two funds brings the number of PowerShares’ factor-based ETFs to 76.

European investors may be interested in PowerShares’ UCITS-compliant range of high div low vol ETFs which provide access to US, UK, eurozone, or emerging markets equities. These fund include the:
PowerShares S&P 500 High Dividend Low Volatility UCITS ETF (LON: HDLV) : TER – 0.30%
PowerShares FTSE UK High Dividend Low Volatility UCITS ETF (LON: UKHD)
: TER – 0.39%
PowerShares EURO STOXX High Dividend Low Volatility UCITS ETF (LON: EUHD)
: TER – 0.30%
PowerShares FTSE Emerging Markets High Dividend Low Volatility ETF (LON: EMHD)
: TER – 0.49%

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