The Bottom Line
- While it’s the prospect of more stable returns that typically draws investors to low-vol equity strategies, income-seekers may be pleasantly surprised by the dividend component built into many of those strategies.
- With its yield now topping 4%, the S&P 500 Low Volatility High Dividend Index leads both the S&P 500 and Russell 3000 – as well as the major U.S. bond index, the Bloomberg Barclays Aggregate.
- Obviously, that does not apply to every low-vol, high-div strategy. Active managers may choose to balance the volatility and income elements in different ways. But it is indicative of the income potential inherent in this approach.
- It’s important to note that dividends, in this context, can be one of the key indicators of a company with a good balance sheet and solid long-term prospects.
- In principle, those firms’ stocks should tend to be less vulnerable to spikes in volatility than companies with weaker fundamentals.
- Or as James Norman, President of QS Investors, puts it: “high-quality companies with [solid] cash flows, and which are expected to have those cash flows going forward, are typically stocks that people go to in times of stress.”
- That helps to explain why these strategies are able to exhibit less variation in performance than equities in general -- as reflected in the lower standard deviation of the Low Volatility High Dividend Index – while providing a yield well beyond that of the U.S. Aggregate Index.
Note: Dividends represent past performance and there is no guarantee they will continue to be paid.
1 Source for all data is Bloomberg.