High Dividend And Low Volatility ETF Outperforms During Corrections
In this article, I will be conducting an overview of broad defensive ETFs to see how each has performed during market corrections over the past two years. After reading a recent article on the Guggenheim Defensive Equity ETF (NYSEARCA: DEF ) and disagreeing with the author’s conclusion that DEF did not do its job, I decided to conduct an overview of all broad defensive ETFs. To start my search, I had to first generate a list of broad defensive ETFs to examine, therefore I used the Fidelity stock screener and searched through all ETFs that met the following criteria for the best broad defensive ETFs. Screen Criteria After conducting the screen, I excluded any individual sectors ETFs listed because I am looking for a broad defensive ETF that owns multiple sectors. After this, I was left with the following 27 ETFs listed in the table below. Inception Date: Before 1/19/2014 Assets: > $100 Million Geography Objective: Domestic, Global Dividend Yield: > 2.04% [10-yr treasury rate at time of writing] Expense Ratio: < 0.75% Performance YTD: > -7.88% [S&P 500 (NYSEARCA: SPY ) ytd return] 30 Day avg. Volume: > 20K Company Name Symbol FIRST TRUST MORNINGSTAR DIVIDEND LEADERS (NYSEARCA: FDL ) FIRST TRUST VALUE LINE DIVIDEND INDEX (NYSEARCA: FVD ) FLEXSHARES QUALITY DIVIDEND DEFENSIVE INDEX FUND (NYSEARCA: QDEF ) FLEXSHARES QUALITY DIVIDEND INDEX FUND (NYSEARCA: QDF ) GUGGENHEIM DEFENSIVE EQUITY ETF DEF ISHARES CORE HIGH DIVIDEND ETF (NYSEARCA: HDV ) ISHARES MORNINGSTAR LARGE-CAP VALUE ETF (NYSEARCA: JKF ) ISHARES MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY ETF (NYSEARCA: ACWV ) ISHARES MSCI USA MINIMUM VOLATILITY ETF (NYSEARCA: USMV ) ISHARES S&P 500 VALUE ETF (NYSEARCA: IVE ) ISHARES SELECT DIVIDEND ETF (NYSEARCA: DVY ) POWERSHARES DIVIDEND ACHIEVERS (NYSEARCA: PFM ) POWERSHARES DYNAMIC LARGE CAP VALUE (NYSEARCA: PWV ) POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS (NYSEARCA: PEY ) POWERSHARES S&P 500 HIGH DIVIDEND LOW VOLATILITY (NYSEARCA: SPHD ) POWERSHARES S&P 500 HIGH QUALITY PORTFOLIO (NYSEARCA: SPHQ ) POWERSHARES S&P 500 LOW VOLATILITY PORTFOLIO (NYSEARCA: SPLV ) SCHWAB U.S. LARGE-CAP VALUE ETF (NYSEARCA: SCHV ) SCHWAB US DIVIDEND EQUITY ETF (NYSEARCA: SCHD ) SPDR S&P DIVIDEND ETF (NYSEARCA: SDY ) VANGUARD DIVIDEND APPRECIATION ETF (NYSEARCA: VIG ) VANGUARD HIGH DIVIDEND YIELD ETF (NYSEARCA: VYM ) VANGUARD MEGA CAP VALUE ETF (NYSEARCA: MGV ) VANGUARD VALUE ETF (NYSEARCA: VTV ) WISDOMTREE EQUITY INCOME FUND (NYSEARCA: DHS ) WISDOMTREE LARGECAP DIVIDEND (NYSEARCA: DLN ) WISDOMTREE TOTAL DIVIDEND (NYSEARCA: DTD ) Correction Performance Using the ThinkorSwim platform, I looked at how each of the above ETFs performed during market corrections over the past two years. The six correction periods I looked at are listed in the table below. To save space, here is a link to the correction performance data for each of the above ETFs in a Google Doc. *Data is price performance only* Correction Periods YTD 9/16/15 – 9/28/15 7/20/15 – 8/25/15 9/18/14 – 10/16/14 7/23//14 – 8/7/14 1/15/2014 – 2/3/14 Correction Performance Results Of the 27 ETFs I started with, only 11 outperformed SPY during every correction period I looked at. Those ETFs along with the average returns during those periods are listed in the table below. As I noted in the first paragraph, the reason I wrote this article was that I disagreed that DEF was not doing its job. However, as you can see through the data link above and in the table below, DEF did in fact do its job because it outperformed the SPY during each correction period. Looking at the data, you can see that SPHD was by far the best performing ETF during corrections. Average Correction Performance POWERSHARES S&P 500 HIGH DIVIDEND LOW VOLATILITY SPHD -3.89% POWERSHARES HIGH YIELD EQUITY DIVIDEND ACHIEVERS PEY -4.58% ISHARES MSCI ALL COUNTRY WORLD MINIMUM VOLATILITY ETF ACWV -4.66% ISHARES MSCI USA MINIMUM VOLATILITY ETF USMV -4.68% ISHARES SELECT DIVIDEND ETF DVY -4.71% GUGGENHEIM DEFENSIVE EQUITY ETF DEF -4.76% FIRST TRUST VALUE LINE DIVIDEND INDEX FVD -4.88% SPDR S&P DIVIDEND ETF SDY -5.57% ISHARES CORE HIGH DIVIDEND ETF HDV -5.58% WISDOMTREE EQUITY INCOME FUND DHS -5.71% FLEXSHARES QUALITY DIVIDEND DEFENSIVE INDEX FUND QDEF -5.87% SPDR S&P 500 ETF SPY -7.18% About SPHD Assets: $543 million Expense Ratio: 0.30% Inception: 10/18/2012 Number of Holdings: 50 ETF Description: The PowerShares S&P 500 High Dividend Low Volatility ETF selects 50 stocks from the S&P 500 that have historically provided a high dividend yield and low volatility. [ SPHD Description ] Like many broad defensive ETFs, SPHD largest sector allocation is to utilities, with just over 25% allocated to the sector. The second largest sector is financials coming in at nearly 20% of the ETF. However, out of that nearly 20% allocation, 13.17% is from REITs. SPHD is also very diversified when it comes to individual holdings as well. The top 10 holdings only account for 27.23% of total assets. Therefore, SPHD is not going to hurt by a single large holding that drags the rest of the ETF down. [Chart from SPHD Holdings Page] Closing Thoughts In closing, I believe SPHD is a quality ETF that has shown it can outperform the broad market during a correction. In addition, SPHD has a dividend yield of 3.70%, which is significantly above the current ten-year treasury rate and significantly, above the 2.24% the S&P 500 is currently yielding. The other ten ETFs that also outperformed the SPY during every correction during the last two years are also worthy of further research as defensive ETF candidates. Disclaimer: See here .