Interest rates and volatility are both rising this year. And investors need to adjust their portfolios to these changing trends.
Investing in dividend growth ETFs makes a lot of sense in the current environment. These ETFs hold high-quality companies that usually have solid balance sheets and strong cash flows.
I spoke to Kieran Kirwan, Senior Investment Strategist at ProShares.ProSharesis well known for its dividend growth, alternative and geared (leveraged and inverse) ETFs. They have six ETFs in their dividend growth suite, including the popular Proshares S&P 500 Dividend Aristocrats ETF (BO:NOBL) .
Kieran talked about the investment case for dividend growth ETFs in the current environment and explained the strategy behind NOBL.
He also discussed how these strategies have outperformed the market over time and also provided stability and downside protection during market downturns.
Since May 2005, the S&P 500 Dividend Aristocrats Index has outperformed the S&P 500 by 2.08% annualized, with lower volatility.
Further, the Aristocrats have historically delivered most of the upside of the market (91% up-capture ratio), while meaningfully protecting on the down-side (74% down-capture ratio) and have outperformed the S&P 500 in 7 of the 10 worst quarterly drawdowns since 2005.
Many investors are getting worried about the high dividend ETFs in their portfolios since these typically have a lot of exposure to rate sensitive sectors like Utilities and Telecom. These sectors are among the worst performers among all S&P sectors this year.
We discussed whether it makes more sense to invest in dividend growth ETFs in a rising rate environment.
Some investors are also concerned about stretched valuation of US stocks and looking for better opportunities in international markets. Global dividends hit a record high last year, thanks mainly to synchronized global growth and rising corporate earnings.
Kieran explained that dividend growth strategies have performed well in the international markets as well and we discussed the ProShares MSCI EAFE Dividend Growers ETF EFAD.
For any question or comments, please write to us at podcast @ zacks.com.
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PRO-SP5 ARISTOC (NOBL): ETF Research Reports
PRO-SH EAFE DG (EFAD): ETF Research Reports
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Zacks Investment Research