Nearly 250 exchange-traded funds hit all-time highs on Tuesday. Included in that group were a slew of dividend ETFs, perhaps a sign that although financial markets are expecting the Federal Reserve to hike interest rates this year, the case for dividend-paying stocks remains firm.
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Up almost 4 percent year-to-date, the First Trust Value Line Dividend Index Fund (FVD) was one of the ETF hitting a record high Tuesday, bringing its one-year gain to 21.5 percent. FVD, which turns 14 later this year, tracks the Value Line Dividend Index.
FVD, The Index And Allocations
The index begins with the universe of stocks that Value Line gives a Safety Ranking of No. 1 or No. 2 using the Value Line Safety Ranking System. All registered investment companies, limited partnerships and foreign securities not listed in the U.S. are removed from this universe, according to First Trust.
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At a time when many income investors are concerned about the Fed's plan for interest rates, conventional wisdom would dictate dividend seekers steer clear of rate-sensitive sectors. FVD obliges with a mere 3 percent weight to real estate stocks, its smallest sector allocation. However, the ETF features ample rate sensitivity with a combined 35 percent allocation to utilities and consumer staples stocks, two of the most rate-sensitive sectors.
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In FVD's favor is its balancing act between sectors that are believed to be vulnerable to rising Treasury yields and cyclical groups that often perform well when interest rates rise.
For example, financial services, one of the sector believed to most benefit from higher interest rates, is FVD's second-largest sector weight at 17 percent. Cyclical industrial and technology names combine for about 21 percent of the ETF's weight.
Over the past 10 years, the Value Line Dividend Index, FVD's underlying benchmark, is up 9 percent, which easily tops the returns of the Dow Jones U.S. Select Dividend Index and the S&P 500 over the same span. FVD has also been less volatile the Dow Jones U.S. Select Dividend Index and the S&P 500 over the past several years, according to issuer data.
A black mark against FVD is its 0.7 percent annual fee, which works out to be $70 on a $10,000 investment. That is high for ETFs, even for smart beta and dividend funds. Investors can find lower fees throughout the universe of U.S. dividend ETFs.
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