If there’s one exchange traded fund combination clients love, it is dividends and low fees. On a standalone basis, there’s no denying advisors and investors gravitate to funds, including ETFs, with low fees.
The same is true of dividend ETFs. Although dividends are often associated with the value factor, which is lagging, it cannot be denied that market participants have added money to dividend ETFs in 36 of the past 37 months. With those factors and others in mind, a new kid on the dividend ETF block could be worth examining: The SPDR Portfolio S&P Sector Neutral Dividend ETF (NYSEARCA: SPDG).
SPDG, which is part of the issuer’s increasingly expansive portfolio of low-cost core ETFs, debuted on Sept. 12. The rookie ETF charges just 0.05% annually, the equivalent of $5 on a $10,000 investment. That puts the new fund at the lower end of the dividend ETF expense ratio spectrum.
“SPDG is the newest addition to our suite of 23 low-cost SPDR Portfolio ETFs. Whether investors want to generate income, manage risk, or grow capital, the SPDR Portfolio ETFs Suite is designed to offer exposure to US equity, international equity, and fixed income asset classes — helping investors build a diversified core portfolio comprising funds priced as low as two basis points,” according to the issuer.
Inside SPDG Methodology
As advisors know, understanding how any ETF, new or old, functions is material to client outcomes. Fortunately, the SPDG methodology is easy to comprehend and convey to clients.
The new ETF follows the S&P Sector-Neutral High Yield Dividend Aristocrats Index. That benchmark is a collection of stocks from the S&P Composite 1500, meaning it includes large-, mid- and small-cap names, that have boosted dividends for at least seven consecutive years.
Both the dividend increase requirement and sector neutrality mandate are important. Regarding the seven-year directive, that’s some lenient relative to other dividend growth ETFs, meaning SPDG’s index could be open to more recent payout growers compared to competing strategies.
When it comes to sector neutrality, that ties into the dividend growth order because many old guard funds in this category are overweight slower moving sectors while being underweight tech – a new, credible source of payout growth. For its part, SPDG allocates almost 27% of its roster to tech stocks, four of which are found among its top 10 holdings.
SPDG Has Qualities Clients Desire
Looking past its youth, SPDG is an ETF that’s likely to appeal to a broad swath of clients.
“SPDG is a compelling addition to our low-cost SPDR Portfolio ETF lineup as well as our broader dividend income suite,” said Matthew Bartolini, head of SPDR Americas Research at State Street Global Advisors. “Providing the potential for attractive income, while seeking to track an index designed to mitigate the effect sector biases can have on the relative returns of dividend strategies versus broader equity markets, SPDG is designed for income-oriented buy-and-hold investors seeking a low-cost, core dividend fund.”
Beyond the low fee and dividend mandate, SPDG is relatively broad (it holds 261 stocks) and it can be inferred that there’s some level of safety as the weight average market value of the fund’s components is $184 billion – deep into large-cap territory.