New ETF Provides Pure-Play Exposure To The Growth Of Dividends
By DailyAlts Staff It sounds like a great plan: Save up a few million bucks, buy dividend-paying stocks, and live off the income. How much do you need? Two million dollars invested in dividend-paying stocks yielding an average of 3% would provide $60,000 in annual income. That’s not bad, but a 3% decline in the market value of the portfolio can quickly wipe out your income for the year. Furthermore, if you don’t have $2 million, or you want to earn more than $60,000, the plan isn’t so great. A new and innovate product from Reality Shares can help bring the retirement fantasy above one step closer to reality. The Reality Shares DIVS ETF (NYSEARCA: DIVY ) provides “pure play” exposure to growth rate of dividend increases, without the volatility of the underlying stock’s price movements. While this is an approach already used by institutional investors, it’s the first product of its kind to package the strategy and make it available to retail investor more broadly. DIVY isolates the underlying dividend of Large Cap Securities included in the S&P 500 and NASDAQ-100 indexes from the stock price, and seeks to deliver the dividend growth of the underlying index constituents, not stock price. When retirement investors purchase dividend-paying stocks, they count on them for current income. In order for such investors to not lose ground to inflation, companies must grow their dividends over time. The Reality Shares DIVS ETF doesn’t provide current income, instead it provides isolated exposure to the growth rate of dividends. In this way, the fund is better suited for investors accumulating wealth than those already enjoying retirement and seeking income. The Reality Shares DIVS ETF uses a rules-based methodology to select its investments. It doesn’t hold the shares of dividend-paying stocks, but instead it “seeks to produce returns based on increases in the expected dividend values of these securities, independent of price performance and dividend yield.” In pursuit of this objective, the fund uses a variety of investment strategies, investing primarily in a series of index-option combinations designed to “capture expected dividend exposure.” ETF.com’s Paul Britt refers to this as a “synthetic dividend.” In a statement announcing the new fund’s launch, Ryan Ballantyne, Reality Shares Executive VP of Sales and Trading, said that his firm’s research indicates high historical correlation “between expected dividend values and the aggregate value of actual dividend payments on large cap securities.” He added that Reality Shares is “excited to offer this innovative investment choice to investors seeking long-term returns that are not directly correlated to broad equity market or fixed income price movements.” Are you Bullish or Bearish on ? Bullish Bearish Results for ( ) Thanks for sharing your thoughts. Submit & View Results Skip to results » Share this article with a colleague