iShares Rolls Out US High-Dividend ETF

March 31, 2011

iShares serves up another way to survive the day when the Fed takes away the punch bowl.

iShares, the world’s-biggest exchange-traded fund firm, rolled out a high-dividend equity ETF today, bringing to three the number of stock funds in its lineup that offers investors a way to earn income outside of the bond universe.

The iShares High Dividend Equity Fund (NYSEArca: HDV) joins the iShares Dow Jones International Select Dividend Index Fund (NYSEArca: IDV) as well as the iShares Dow Jones Select Dividend Index Fund (NYSEArca: DVY), the first dividend-focused exchange-traded fund that the San Francisco-based company brought to market in 2003.

HDV joins a crowded field of dividend-focused ETFs, with the first to market—iShares’ DVY—the single biggest of the lot. It has $6.07 billion in assets. The SPDR S&P 500 Dividend ETF (NYSEArca: SDY), is the second-biggest, with $5.5 billion, while the Vanguard Dividend Appreciation ETF (NYSEArca: VIG) is third, with $4.37 billion in assets, according to data compiled by IndexUniverse.

Dividend-producing ETFs loom largely as attractive investments in an environment where official interest rates might be rising. While it’s not yet clear that the Federal Reserve is close to ending the ultra loose monetary policies it has had in place since the market crash of 2008-2009, it is crystal clear that when it starts to signal interest rates are heading higher, bond prices will be hard hit.

“A basket of high dividend yielding equities can often provide investors with several benefits,” Noel Archard, head of U.S. products at iShares, said in a press release. Among those benefits, Archard cited the potential for enhanced total return, possible reduced volatility compared with more growth-oriented stocks, and greater inflation protection than bonds through capital appreciation.

The new iShares ETF, HDV, comes with an annual expense ratio of 0.40 percent, the same as its own DVY. The fund is benchmarked to the Morningstar Dividend Yield Focus Index, which provides access to U.S. equity securities issued by companies that have consistently paid relatively high dividend yields.

iShares, a unit of New York-based money manager BlackRock, also sponsors IDV.

iShares hadn’t yet posted HDV’s 30-day SEC yield on its website as of Thursday morning. DVY’s is 3.48 percent, while its internationally focused dividend fund IDV has one of 4.55 percent, according to the website. IDV has about $470 million in assets and comes with an annual expense ratio of 0.50 percent.

The new ETF, HDV, was trading Thursday morning at $50.75 per share and its bid/ask spread was at 1 cent, according to data posted on the website Yahoo Finance.

The 40 basis point expense ratios on the two U.S.-focused iShares dividend ETFs are higher than the 0.35 percent SSgA charges for SDY and the 0.23 percent Vanguard charges for its VIG.


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