The Invesco Diversified Dividend Fund: A Solid Investment Strategy, but at a High Cost
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The Invesco Diversified Dividend Fund (NASDAQMUTFUND: LCEAX) uses a total-return strategy to generate strong returns and growing income over time, with low volatility. While the mutual fund has a record of strong performance, its fees are a little on the high end.
About the fund
Despite what the reference to dividends in its name may imply, the primary objective of the Invesco Diversified Dividend Fund is long-term total returns, with a secondary objective of generating income.
As of this writing, the fund has $18.1 billion in total assets, and invests in 70 individual stocks, none of which make up more than 3.2% of its portfolio. Most of the stocks are low-volatility, stable companies, with established histories of sustainable dividend growth. Just to give you an idea, take a look at the five largest holdings as of this writing:
|
Company |
Symbol |
Dividend Yield |
Years of Consecutive Dividend Increases |
|---|---|---|---|
|
General Mills |
GIS |
2.94% |
12 |
|
AT&T |
T |
4.79% |
31 |
|
Coca-Cola |
KO |
3.33% |
53 |
|
Exelon |
EXC |
3.72% |
N/A |
|
Hartford Financial Services |
HIG |
2.00% |
3 |
Dividend information current as of 9/20/16.
The minimum initial investment into the fund is $1,000, or $250 if you're investing through an IRA. Subsequent investments can be made with as little as $50.
In short, the portfolio is designed to produce steadily increasing dividend income and strong returns while still allowing investors to sleep soundly at night knowing their money isn't going to vanish in a market crash.
Be aware of the costs...
There are two main classes of shares available to retail investors: Class A and Class C (NASDAQMUTFUND: LCEVX). Class A shares come with a 0.84% gross expense ratio, but can come with a sales load of up to 5.5%. Class C shares don't have an initial sales load, but have a much higher 1.59% expense ratio and a 1% contingent deferred sales charge (CDSC), which kicks in if the shares are sold within a year.
Here's a look at the fund's annualized return history, as well as the Russell 100 Value Index, the fund's benchmark. All returns are inclusive of fees and any applicable sales loads.
|
Time Period |
Class A Shares (including 5.50% sales load) |
Class C Shares |
Russell 1000 Value Index (Fund's Benchmark) |
|---|---|---|---|
|
1 Year |
2.66% |
9.31% |
2.86% |
|
5 Years |
10.76% |
13.65% |
11.35% |
|
10 Years |
7.57% |
7.08% |
6.13% |
In fairness, the fund is actively managed, meaning that the fund's managers actually pick stocks as opposed to just tracking an index. This generally results in higher fees and expenses. Furthermore, when looking at the performance chart, you'll notice that the 10-year return actually beat the benchmark, even after the hefty sales load and expense ratio. Fees paid on investments can be well worth it if they're justified by the performance. So, for comparison, here are a few other actively managed dividend mutual funds that have similar investment strategies.
|
Vanguard Equity Income Fund (VEIPX) |
Fidelity Equity-Income Fund (FEQIX) |
T. Rowe Price Equity Income Fund (PRFDX) |
|
|---|---|---|---|
|
Expense Ratio |
0.26% |
0.71% |
0.66% |
|
Sales Load |
None |
None |
None |
|
Minimum Investment |
$3,000 |
$2,500 |
$2,500 |
|
5-Year Annualized Returns |
12.62% |
12.19% |
11.94% |
|
10-Year Annualized Returns |
8.11% |
4.85% |
5.92% |
The bottom line
While I like the Invesco Diversified Dividend Fund's investment strategy and its performance history is solid, the fees involved are simply too high for my taste, especially while there are comparable options with much lower costs. Investors will probably do just fine with the fund over the long term, but those fees can really take a bite out of performance, and you can potentially achieve better returns in a dividend fund with more reasonable expenses.
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Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.