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As equities are hitting new highs, it is becoming harder for fund investors to ignore higher price-to-earning ratios of equity funds. The Invesco S&P 500® High Dividend Low Volatility ETF (SPHD) is simply being ignored due to recent under-performance compared to the S&P 500 (SPY). This is creating an interesting opportunity for long-term investors to rotate into an ETF that is yielding a much higher dividend then the S&P 500. Lets take a look at the recent under-performance of SPHD vs. SPY:
(Source: YCharts.com)
As you can see from the above chart, the SPHD started lagging the S&P 500 around April of this year. This is creating an opportunity for dividend focused investors to buy some shares.
SPHD is offering investors a P/E ratio of 14.31 vs. the S&P 500 of 21.96
What prompted me to take a look at the P/E ratio of SPHD was a recent conversation with a fellow low volatility investor, who expressed concern with the higher P/E ratios of the equity markets. Lets take a look at what Invesco has provided us here with the recent fund characteristics:
- Price/Earnings Ratio: 14.31
- Price/Book Ratio: 2.00
- ROE: 17.33%
Please note that these numbers are based on March 31st, as we do not have June 30th numbers yet.
SEC 30 day yield of 4.63%
The biggest draw of attention to this fund is clearly the high dividend yield. Coming in at 4.63%, the SPHD is yielding over double that of the S&P 500.
- SEC 30 Day Yield: 4.63%
- Distribution Rate: 4.37%
- 12 Month Distribution Rate: 4.07%
When looking at any investment, I always look at what I am getting paid, vs. what I could make on capital appreciation. If we continue to make 4.63% per year, the fund only has to have a capital appreciation of just 3.4% to make an annual return of 8%. This is a simple yet important calculation to take a look at. There will be times the fund will drawdown in price, but if we continue to hold it, there is a great chance we will average that 3% annual appreciation in the underlying shares.
Annual Returns
When looking at the lagging returns as of late, many investors lose focus of what the long-term returns are. The SPHD actually outperformed the S&P 500 in 2014, 2015, and 2016.
Year | SPHD | SPY |
---|---|---|
2013 | 20.82% | 32.31% |
2014 | 19.99% | 13.46% |
2015 | 5.17% | 1.25% |
2016 | 22.36% | 12.00% |
2017 | 11.89% | 21.70% |
2018 | -6.15% | -4.56% |
2019 | 12.18% | 18.32% |
(Source: PortfolioVisualizer.com)
The past few years of under-performance has gave equity investors a chance at picking up these 50 high dividend paying stocks at a discount to the overall market.
Risk Metrics
Before investing in any ETF or mutual fund, an investor has to look at what the potential risks are.
Metric SPHD SPY
Arithmetic Mean (monthly) | 1.06% | 1.15% |
---|---|---|
Arithmetic Mean (annualized) | 13.49% | 14.70% |
Geometric Mean (monthly) | 1.01% | 1.10% |
Geometric Mean (annualized) | 12.88% | 13.97% |
Volatility (monthly) | 3.05% | 3.29% |
Volatility (annualized) | 10.56% | 11.39% |
Downside Deviation (monthly) | 1.71% | 1.97% |
Max. Drawdown | -7.47% | -13.52% |
US Market Correlation | 0.79 | 0.99 |
Beta(*) | 0.71 | 0.97 |
Alpha (annualized) | 3.08% | 0.63% |
R2 | 61.69% | 98.96% |
Sharpe Ratio | 1.14 | 1.16 |
Sortino Ratio | 2.01 | 1.90 |
Treynor Ratio (%) | 17.05 | 13.58 |
Calmar Ratio | 0.97 | 1.04 |
Active Return | -0.81% | 0.29% |
Tracking Error | 7.36% | 1.22% |
Information Ratio | -0.11 | 0.23 |
Skewness | -0.22 | -0.56 |
Excess Kurtosis | 0.89 | 0.86 |
Historical Value-at-Risk (5%) | -4.26% | -6.11% |
Analytical Value-at-Risk (5%) | -3.96% | -4.26% |
Conditional Value-at-Risk (5%) | -6.79% | -7.36% |
Upside Capture Ratio (%) | 76.99 | 99.93 |
Downside Capture Ratio (%) | 60.69 | 97.53 |
Safe Withdrawal Rate | 25.92% | 26.21% |
Perpetual Withdrawal Rate | 10.69% | 11.62% |
Positive Periods | 54 out of 78 (69.23%) | 58 out of 78 (74.36%) |
Gain/Loss Ratio | 1.14 | 0.84 |
(Source: PortfolioVisualizer.com)
When looking at the risk metrics above, the max drawdown is what catches my eye. A maximum drawdown is the maximum observed loss from a peak to a trough, before a new peak is attained. Maximum drawdown is an indicator of downside risk over a specified time period. The max drawdown of the SPHD is -7.47% vs. the S&P 500 of -13.52%. Investors are getting some downside protection while also earning double the average dividend yield.
Summary of SPHD
When looking at equity funds to purchase in the near-term, consider the SPHD. The SPHD has an average P/E ratio of around 14.3, a dividend yield of 4.63%, and potential to reduce drawdowns. For any passive equity investor, this would be a great way to add some style factor investing while focusing on earning higher dividends long-term. According to FutureAdvisor, dividends can make up to 45% of an investors total return. These dividends tend to be less volatile over the long-term then earnings, which tend to help the share prices be less volatile. Take a second look at the SPHD for part of your equity allocations today.
Disclosure: I am/we are long SPHD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Ortner Capital consults clients who own SPHD. These opinions are that of Josh Ortner, CTFA. Please consult a certified professional before acting on any information provided in this article.
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