As you may recall from our of our past ETF spotlight posts, iSectors loves to talk about dividend ETFs. In this iteration we will be discussing the Global X SuperDividend US ETF (DIV). This fund can be broadly placed in a similar category as other ETFs we have already spotlighted in this series such as the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), the SPDR S&P Dividend ETF (SDY), and the PowerShares S&P 500 High Dividend Low Volatility ETF (SPHD). DIV differs from these funds more than just not utilizing a non-S&P based index and calling itself a “SuperDividend” fund instead of a plain old regular “dividend” fund. Before we get to some of those nuanced differences, a little introduction to DIV, and the SuperDividend strategy as a whole, is probably necessary.
The SuperDividend strategy used by Global X is very unique and utilized across almost their entire product lineup. They have an international version of DIV, as well as a SuperDividend REIT fund included in their lineup. The basic idea is simple: provide the highest possible yield. But be warned, at times this will come at the cost of sacrificing total return. That must be understood when approaching DIV or any of the other SuperDividend funds. There are times when this strategy falls short in comparative performance metrics. However, that being said, not only does the search for yield work, it works very, very well. For example, DIV’s 12 month yield of 7.22% (as of 9/12/2016) is more than double the 12 month yields for the two funds I mentioned earlier, NOBL and SDY. In fact, the yield is more than double that of many of the ETFs in the U.S. dividend fund space.
What DIV does to obtain this yield is fairly simple and straightforward. It takes the full investable universe of U.S. stocks, screens for size and liquidity, applies a low volatility screen by removing any stock with a beta higher than 0.85, then it takes the highest 50 yielding stocks of the remaining universe and equal -eights them. This delivers a portfolio of stocks with good yield and lower volatility to make up for delivering less powerful returns.
Instead of highlighting the fairly substantial list of differences between DIV and the more standard dividend ETFs mentioned previously, I’ll start with the similarities so that it is understood these funds are at least properly categorized together. First of all, and most obviously, the focus of these funds is to provide exposure to U.S. stocks that pay above average, consistent dividends. Similarly to SDY, DIV provides exposure to more than just large cap funds, and similarly to SPHD, DIV applies a volatility screen. This is where the similarities mostly end.
The differences between DIV and more standard dividend ETFs like SDY start with the selection universe of the index. DIV has access to the entire universe of investable stocks, which along with its equal weighting methodology, skews the fund a little more towards small and mid-cap stocks. Also fitting in with the broadened universe of DIV is the fact that the fund includes REITs and MLPs. This contributes greatly to the hefty yield of DIV, and the MLP inclusion also may help to explain the relatively poor performance metrics in recent times mentioned above.
DIV probably isn’t the ETF you’re looking for if you want a core position in a portfolio. However, it is a wonderful complement that can boost the yield of an entire portfolio with as little as a 5-10% allocation.