Invesco has launched two factor exchange traded funds that blend together high dividend and low volatility exposures.
With these two funds, PowerShares now has 76 ETFs in its factor line-up.
Combining high dividend and low volatility factors is potentially attractive to investors in light of government stimulus across Asia, Europe and the US pushing bond yields to historically low levels and in certain circumstances into negative territory.
"Blending factors can be a key to unlocking their diversification power," says Dan Draper, global head of PowerShares by Invesco. "Combining high dividend and low volatility factors in our two newest ETFs may also provide investors with more defensive access to equity income in the face of uncertain markets."
PowerShares S&P International Developed High Dividend Low Volatility Portfolio (IDHD) seeks out the highest-income-producing equities in international developed markets, and then incorporates a low volatility overlay, with the goal of avoiding value traps among high dividend stocks. This systematic, factor approach allows IDHD to efficiently identify potentially more attractive valuations when selecting equities based on the combination of high dividend and low volatility.
IDHD's initial screen is the S&P EPAC Ex-Korea Low Volatility High Dividend Index methodology, which seeks to select the 300 highest dividend paying companies within the S&P Developed Ex-US BMI LargeMidCap Index, a benchmark including stocks from developed markets excluding the US.
The final screen in IDHD's security selection process chooses the 100 securities that have demonstrated the lowest volatility over the trailing 12 months, potentially reducing volatility associated with dividend strategies by helping avoid names that have fallen into a value trap scenario.
PowerShares S&P SmallCap High Dividend Low Volatility Portfolio (XSHD) also seeks out the highest-income-producing equities, but instead looks at small cap companies. From there, XSHD overlays a low volatility screen to seek out more attractive valuations.
XSHD's initial screen is the S&P SmallCap 600 Low Volatility High Dividend Index, which seeks to select the highest dividend paying companies by first screening for the highest 90 dividend yielding securities in the S&P SmallCap 600 Index, which measures the small-cap segment of the US equity market.
The final screen in XSHD's security selection process selects the 60 securities that have demonstrated the lowest realised volatility over the trailing 12 months, potentially reducing volatility associated with dividend strategies by helping avoid names that have fallen into a value trap scenario.
