Strong performance and dividend yields amid volatility — typically, an investor may need to sacrifice one in order to maximize the other. However, the Franklin U.S. Dividend Booster Index ETF (XUDV) is proving otherwise. With a year-to-date gain of just over 10% and a 30-day SEC yield of 4.55% (as of January 31), it’s a viable option for investors looking to meld performance and maximized quarterly dividend distributions while limiting volatility.
Strong YTD Performance
The engine moving the fund’s performance is the underlying index: the VettaFi New Frontier US Dividend Select Index. This results in a systematic, rules-based strategy managed by VettaFi that seeks to provide excess yield without sacrificing stability.
The strategy begins with the VettaFi US Equity Large-Cap 500 Index (the parent index), onto which a sophisticated optimization screener is applied. The ultimate goal is to provide a “boosted” dividend yield that minimizes volatility relative to the parent index. In essence, the fund doesn’t just choose the highest-yielding stocks. Rather, it applies a discerning screener that selects and weight securities based on:
- Yield maximization: achieving the highest income return possible;
- Volatility mitigation: limiting market fluctuations relative to the broad market; and
- Diversification: applying individual stock and sector weighting limits to prevent over-concentration.
The index is reconstituted quarterly, ensuring the fund remains aligned with current market conditions.
While major market indexes are heavy on technology names, XUDV tilts towards financials (19.85%), consumer staples (15.67%), healthcare (10.49%), industrials (10.17%), and energy (9.71%) to round out the top five sector exposures (as of February 24). With tech seeing heavy volatility as investors question AI valuations relative to their fundamentals, XUDV has been easily outpacing the S&P 500. Tech is still part of the fund’s portfolio, but kept to 7.71% as opposed to the S&P’s over 30%.
Avoids Yield Traps
In a time when the U.S. Federal Reserve is expected to continue easing monetary policy, investors may be looking to supplant their fixed income exposure by adding dividend income. It can be enticing to fixate on high yields but XUDV addresses an important factor: volatility control.
Investors can avoid these yield traps that focus on struggling companies with high payouts by turning to those with the ability to not only provide a steady stream of dividends, but also mitigate the risk of market volatility. As a basis of comparison, XUDV still provides optimal yield (the aforementioned 4.55%). Meanwhile, the iShares Core High Dividend ETF (HDV) has a 30-day SEC yield of 3.1% (as of January 31) and the State Street SPDR S&P Dividend ETF (SDY) carries a yield of 2.3%.
Dividend stocks in general provide a grounded alternative versus the broad market’s skyrocketing tech valuations. This valuation fatigue is giving way to more value-oriented approaches. Dividend stocks can provide a defensive shield against today’s uncertainty-driven market volatility.
With yield and volatility mitigation, XUDV is a viable alternative for today’s market.
For more news, information, and strategy, visit ETF Trends.
VettaFi LLC (“VettaFi”) is the index provider for XUDV for which it receives an index licensing fee. However, XUDV is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of XUDV.
