As flows data suggest, investors are displaying a preference for low volatility exchange traded funds this year. Dividend ETFs have been a different story, but there are some ETFs that combine dividend and low volatility strategies that investors are fans of.
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With that in mind, the Legg Mason Low Volatility High Dividend ETF (LVHD) could prove to be one of this year's more well-timed new ETFs. LVHD debuted in January as part of a four-ETF suite that represents Baltimore-based Legg Mason Inc. (LM)'s initial foray into the ETF business.
Although LVHD has been slow to accumulate assets, investors might do well to focus on more important statistics. For example, LVHD is up 3.6 percent since coming to market while the S&P 500 is down more than 4 percent over the same period. Additionally, LVHD has outpaced each of the four largest U.S. dividend ETFs since inception.
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LVHD is focused on income, risk mitigation and capital appreciation. It is based upon the idea that a stock's ability to sustain a strong dividend payout is often associated with lower volatility, making these two characteristics complementary. Using a disciplined, rules-based methodology, the fund will screen for stocks with the potential for sustainable high dividends, while simultaneously screening out historically volatile stocks in the market, according to Legg Mason.
Since it is a low volatility ETF, it is not surprising that LVHD allocates nearly 18 percent of its weight to utilities stocks, making that group the ETF's second-largest sector weight. As volatility has ebbed in the financial services space, that sector has taken the top spot in some well-known low volatility ETFs and LVHD is not an exception with a 21 percent allocation to that sector.
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As is the case with other ETFs that marry dividends and low volatility, LVHD's roster is not large at just 96 stocks. Nearly 32 percent of those holdings have market values north of $50 billion.
LVHD's top 10 holdings, which combine for about 28 percent of the fund's weight, include four members of the Dow Jones Industrial Average, such as Verizon Communications Inc. (VZ) and Johnson & Johnson (JNJ).
Disclosure: The author owns shares of JNJ.
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