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Game-Changing S&P 500 High-Div/Low-Vol ETF

October 19, 2012
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PowerShares has brought us something very new, and I think the fund is going to be a big hit.

The company behind the Nasdaq 100 ETF, the PowerShares QQQ Trust (NasdaqGM: QQQ) is coming on strong again, this time with the launch of its PowerShares S&P 500 High Dividend Portfolio (NYSEArca: SPHD).

As the name suggests, SPHD will hold some of the highest-yielding companies from the S&P 500 Index.

But SPHD also comes with a slight twist. It’s not obvious from the name, but it incorporates a low-volatility component.

Here’s how it works. Seventy-five of the highest-dividend-yielding stocks are selected from the S&P 500 Index. From those 75 stocks, 50 are selected that exhibit the lowest volatility. The constituents are then dividend-weighted.

Hats off to PowerShares on this one. After all, why not combine two of the largest investment themes from the past year—high dividends and low-volatility—into one fund?

As far as I’m concerned, SPHD actually has three things going for it. The first two, I already made clear.

But the third part is that it’s based on the S&P 500 Index. Even better, it throws this popular index name into its fund name.

The reason this is so smart is that throwing the phrase “S&P 500” into a fund name has so far in the history of the ETF industry been an absolute money magnet.

If you look at the assets under management of the 15 equity funds that incorporate S&P’s most popular index in its fund name, seven have over $1 billion in AUM, six have more than $100 million and only two have less than $100 million.

S&P 500 Funds' AUM

And the granddaddy of them all, the SPDR S&P 500 ETF (NYSEArca: SPY), was the first ETF created and is currently the largest ETF on the planet, with assets of over $115 billion.

Then there’s the fund’s cost. Its 0.30 percent expense ratio is cheap considering its multifactor methodology. This also makes SPHD one of the cheaper U.S. high-dividend ETFs.

 

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