Fresk: iShares ‘Core’ Means New Exposures

June 19, 2014

Equity

Within U.S. exposure, the new offering, the iShares Core Dividend Growth ETF (DGRO), is a complement to an existing dividend fund, the iShares Core High Dividend (HDV |A-67), which has been added to the core lineup. Both funds have an annual expense ratio of 12 basis points. (HDV previously was 40 basis points, as iShares aims for rock-bottom pricing on its Core lineup.)

While HDV focuses on dividend yield and selects the highest-yield stocks that meet index eligibility, DGRO focuses on dividend growth and selects stocks that have passed dividend growth sustainability screens.

As such, DGRO will have more cyclical exposure, whereas HDV will have more noncyclical. The GICS sector breakdown is as follows:

GICS Sector DGRO HDV DGRO-HDV
Industrials 16.54 0.91 15.63
Consumer Discretionary 12.74 3.82 8.92
Financials 6.89 0.77 6.12
Information Technology 14.28 8.21 6.07
Materials 3.94 2.03 1.91
Energy 9.82 13.91 -4.09
Consumer Staples 20.36 25.87 -5.51
Utilities 5.42 13.17 -7.75
Health Care 9.82 19.58 -9.76
Telecommunication Services 0.00 11.60 -11.60

DGRO will join a very small group of dividend ETFs that focus on dividend growth vs. yield.

Another name in this space worth mentioning is the WisdomTree US Dividend Growth Fund (DGRW | B-71).

As concerns over rising interest rates continue, these dividend growth names may suffer less of a drag, as they would be less correlated to interest rates than their higher-yielding counterparts would, and as such, may be an attractive substitute and/or complement to an existing portfolio.

Takeaways

The takeaways from these iShares additions to its Core ETF lineup is that investors are really getting new access to parts of the investment universe via indexing innovations that weren’t previously available.

Even better, these “Core” ETFs truly are inexpensive, and for investors, there’s no downside to keeping costs tightly controlled.


At the time this article was written, Stadion held long positions in HDV and BSV.

Founded in 1993, Stadion Money Management is a privately owned money management firm based near Athens, Ga. Via its unique approach and suite of nontraditional strategies with a defensive bias, Stadion seeks to help investors—through advisors or retirement plans—protect and grow their “serious money.” Contact Stadion at 800-222-636 or www.stadionmoney.com. References to specific securities or market indexes are not intended as specific investment advice.

 

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