Looking for a way to increase your portfolio’s exposure to high-quality, corporate performers? Dividend-focused smart-beta funds may be worth a serious look.
Smart beta ETFs are carefully constructed indexes that rank stocks by traits other than their market value, the standard methodology employed by traditional benchmarks, such as the Standard & Poor’s 500.
Instead, these products focus on “factors,” such as growth, value, volatility or other financial metrics that offer the possibility of market-beating performance and reduced portfolio risk.
The Covestor Dividend Portfolio is a smart beta strategy designed to systematically deliver return and risk characteristics of large- and mid-cap high dividend stocks within the US equity market.
The portfolio is implemented using a rules-based approach and offered at a relatively low cost.
As the name implies, dividend-focused smart beta funds try to screen for companies with strong track records for rewarding their shareholders with dividends and a reputation for gold-plated financial management.
Companies with steady and strong dividend records tend to be well-managed, shareholder-focused and less volatile.
Smart beta strategies choose companies based on transparent financial parameters. That said, as an investor, you need to make sure you understand the selection criteria.
Are the stocks ranked by dividend yield and, if so, over what time frame? Most dividend investors like to see steady performance over a long period of time.
What about payout ratios? If a company is paying out a big percentage of its income as dividends, it may have no margin of error in a sudden crisis. High dividend-yield, low- payout companies are less risky for investors all things being equal.
Finally, investors should consider if a dividend-paying company is engaging in a bit of financial engineering, using fat dividends to boost its stock and mask the reality that it doesn’t have attractive options to invest its cash for future growth.
Disclaimer: Covestor’s Smart Beta Portfolios (including the Covestor Dividend Portfolio) are not Exchange-Traded Funds or mutual funds but are portfolios made up of individual stock holdings. These portfolios mainly invest in stocks and may not be suitable for all investors. You may lose all or part of investments in these portfolios, and their past performance is no guarantee of future results.
You may find additional information on the risks, conflicts of interest, applicable brokerage commissions, fractional shares, and limitations on investments and divestments associated with these portfolios (along with Covestor’s full disclosures) on the Forms and Agreements page at ibkram.com. Covestor Ltd. is an investment advisor registered with the Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. Brokerage services are provided to Covestor clients by Interactive Brokers LLC, an SEC-registered broker-dealer and member NYSE/FINRA/SIPC and an affiliate of Covestor.
- IB Asset Management is a pioneer in online investing. IB Asset Management offers a variety of portfolios, including the Smart Beta portfolios, which are managed by IB Asset Management's Chief Investment Officer and Investment Management team. The “Smart Beta” approach to portfolio construction is grounded in academic research. The goal is to achieve an alternative risk-return profile which is more attractive than a simple capitalization-weighted index such as the S&P 500. IB Asset Management Smart Beta portfolios are designed to provide systematic exposure to a fundamental factor or combination of factors. Portfolios are constructed using a rules-based approach and offered at a relatively low cost.