Russell Rolls Out Two High-Payout ETFs

March 15, 2012

It’s better late than never, as Russell begins rollout of its lineup of high-dividend ETFs.

Russell Investments, the indexing firm that began launching its own ETFs last May, today joined a crowded field of dividend-focused equity ETFs with the rollout of a pair of high-payout funds designed to offer investors another source of income outside of fixed-income strategies.

The Russell High Dividend Yield ETF (NYSEArca: HDIV) is a U.S. large-cap portfolio comprising high-payout names from the Russell 1000 Index. The fund costs 0.33 percent a year. That’s a tad lower than its small-cap counterpart going live today, the Russell Small Cap High Dividend Yield ETF (NYSEArca: DIVS). DIVS’ portfolio is a high-dividend subset of the Russell 2000 Index. It costs 0.38 percent.

Seattle-based Russell is a bit of a latecomer to the space. HDIV will face some stiff competition from at least a dozen other U.S. high-dividend-yield ETFs that serve up similar exposure. It will also face stiff competition on price from the likes of Vanguard and Charles Schwab funds. The $10.2 billion Vanguard Dividend Appreciation ETF (NYSEArca: VIG), for instance, costs only 0.18 percent a year, while the Schwab U.S. Dividend Equity ETF (NYSEArca: SCHD) costs 0.17 percent.

DIVS appears to be the market’s first U.S. high-dividend equity fund to focus solely on U.S. small-cap companies, according to data compiled by IndexUniverse. However, the fund would join a broad-based WisdomTree small cap dividend ETF (NYSEArca: DES) that is not necessarily characterized as a high-payout fund. DES has gathered $316.4 million since 2006 and costs 0.38 percent.

Overall, investors have embraced ETFs that offer high payouts, especially at a time of global economic uncertainty—even if these funds aren’t always the best-performing ones. Dividend-yield ETFs can often fall victim to volatility, which has a negative effect on total returns, if not the actual dividend stream.

Still, dividend-yield ETFs can be particularly attractive in an environment where official interest rates might rise, something that looms largely after more than three years of ultra-loose monetary policies the Federal Reserve put in place to stoke growth following the 2008 market crash.

Successful Dividend ETFs

Apart from Vanguard’s VIG, a number of other dividend ETFs have attracted serious assets, which speaks volumes about investor appetite for such strategies.

Funds like the iShares Dow Jones Select Dividend Index Fund (NYSEArca: DVY), one of the market’s largest and oldest U.S. dividend ETFs, boasts more than $10 billion in assets, and is one of only two iShares U.S. dividend ETFs. The $9 billion SPDR S&P Dividend ETF (NYSEArca: SDY) is another giant in the segment, and that’s just to name a few.

An International Dividend ETF Still To Come

Both of Russell’s strategies, each following a respective Russell index through full replication, invest only in the stocks with the highest payouts relative to their peers, but the funds also screen for a company’s dividend growth, its earnings stability and for the sustainability of its profits.

HDIV and DIVS should soon be joined by an international dividend ETF that was originally included in paperwork Russell filed with U.S. regulators prior to launch.

The Russell International High Dividend Yield ETF will eventually be listed on the NYSE Arca platform under the ticker “IDIV,” and cost 0.48 percent in expense ratio, the company said in its latest filing.

The money management and indexing firm already offers a roster of factor-based funds such as volatility, beta and momentum-focused ETFs, but the new ETFs are the company’s first U.S. dividend funds.


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