Displaying items by tag: LVHD

(New York)

With the proliferation of ETFs and model portfolios and the growing amount of assets flowing into them, more and more AUM has been going into low vol and other risk management-oriented strategies. This is doubly true with the big volatility of the last year. However, a small cautionary tale to share today. If you take a look at LVHD, a popular “low volatility high dividend” ETF from Legg Mason, you see a fund that has significantly underperformed the S&P 500 and failed to protect investors from volatility. It is hard to know exactly why because the fund’s proprietary methodology is not transparent. However, even that fact is representative of the space. In their rush to defend against downside, many low vol ETFs and models can inadvertently and drastically underperform and expose investors to very low risk-return profiles.

FINSUM: What you get is not always what is being sold, so when choosing low vol products, make sure to pay significant attention to methodology and track record, especially during periods of volatility.

(New York)

As our readers will know, we spent the better part of last week at the Inside ETFs conference. As part of our time there, we are planning to feature a couple of ETFs which we think might be interesting to advisors. The first one we want to feature is a special fund from Legg Mason, the fund is called the Legg Mason Low Volatility High Dividend ETF (LVHD). We were lucky enough to meet with one of the fund’s specialists, Josh Greco, at the conference, and his passion for the fund’s approach really shined through. The fund’s own words describe it best, it seeks to track “the investment results of an underlying index composed of equity securities of U.S. companies with relatively high yield and low price and earnings volatility … LVHD may benefit investors who want income but are concerned about the volatility that can come from traditional equity income investments”. Basically, the idea is to get yield and upside, without so much of the volatility that is traditionally associated with equities. Mr. Greco contextualized the utility of the approach succinctly and convincingly, explaining that as clients’ lives elongate they are going to need to stay in equities longer to get capital appreciation. Accordingly, this fund seeks to de-risk some of that necessary exposure while still giving significant upside and yield. The fund has about $600m in AUM, is widely available, has an expense ratio of 0.27%, and a dividend yield of 3.48%.

FINSUM: In our mind, this fund does an excellent job of fusing some of the best elements of fixed income (yields and less volatility) with the best part of stocks (capital appreciation). It may be a great fit for older clients that need to keep a significant allocation to equities. It is also quite affordable at 0.27%.