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SPHD: A Dangerous Dividend ETF To Own

Published Tue, 17 Nov 2020 15:27:04 -0500 on Seeking Alpha

Seeking AlphaETF AnalysisSPHD: A Dangerous Dividend ETF To OwnNov. 17, 2020 3:27 PM ET|| About: Invesco S&P 500 High Dividend Low Volatility Portfolio ETF (SPHD)by: The Sunday InvestorThe Sunday Investor Long Only, long-term horizon, portfolio strategy, large-capSummaryThe Invesco S&P 500 High Dividend Low Volatility ETF delivers on yield, but fails to provide an adequate degree of dividend safety and growth.
The tracked index's low volatility screen is inappropriate for most investors with a time horizon longer than one year.
SPHD is forecast to look much different when it rebalances in February, but still will have only marginal dividend safety and growth improvements along with potentially higher volatility.
I would not recommend SPHD for defensive dividend investors as its methodology inherently emphasizes yield above all reasonable risk management measures.
Investment Thesis
The Investor S&P 500 High Dividend Low Volatility ETF (SPHD) does a good job providing its investors with a high dividend yield but fails on almost every other important measure. SPHD's dividend safety and growth grades are poor, and its low-volatility screen is entirely inadequate. SPHD's index construction methodology is to blame, and investors would be wise to avoid this ETF under all circumstances other than for short-term trading purposes.
ETF Profile and Methodology
SPHD tracks the S&P 500 Low Volatility High Dividend Index with its stated purpose being to measure the performance of the 50 least-volatile high dividend-yielding stocks in the S&P 500. The Index is constructed by first ranking S&P 500 securities by dividend yield and then sorting them in ascending order by their one-year trading volatility as measured by the daily standard deviation. The minimum and maximum security weight ranges are 0.5% and 3.0% respectively with a sector cap at 25%, and there can be no more than ten securities per sector. The index is reconstructed semi-annually... Read more