Is Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) a Good Trade Now?

The downgrade of ratings of the United States and various banks has precipitated pessimistic investor sentiments. This change is further fed by a confluence of factors such as inflation, strong retail sales numbers, and the U.S. jobs market that collectively suggest almost no possibility of a rate cut this year.

Given the market uncertainties, investors keen on maintaining their equity investments might consider buying low-volatility ETFs, such as the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD). SPHD’s low volatility could help navigate the turbulent market conditions while its dividend payments can serve as a steady income stream.

In July, retail sales rose 0.7% from the month prior, surpassing Wall Street's 0.4% growth estimate, which underpins the enduring resilience of American consumers. Bureau of Labor Statistics data revealed 0.4%monthly wage gains, contributing to a 4.4% annual rise, thereby beating the forecasts.

In addition, the Fed's restrictive monetary policy has prompted higher borrowing costs and stricter lending regulations, which have created immense pressure for many banks and non-bank businesses grappling with large corporate debts.

Moody's recently responded to this pressure by downgrading the credit ratings of 10 U.S. banks in August while concurrently issuing warnings to major lenders of potential downgrades. Also, Fitch slashed the U.S. government's top credit rating, citing rising debts and an "erosion of governance."

Moreover, inflation remains above the Federal Reserve's 2% target despite easing significantly from last year’s highs. While no further interest rate hike is foreseen this year, the likelihood of an interest rate reduction is improbable.

Despite contrasting data strands, markets are pricing in a rate hike pause. However, some experts offer contradictory predictions, speculating potential rate raises in future months.

Given the prevailing market turbulence, investing in SPHD could be an effective strategy. As a conduit to access dividend-paying large-cap enterprises with low volatility, SPHD is poised to provide a steady income stream.

The ETF has gained 2.5% over the past three months to close its last trading session at $40.92. It has a five-year beta of 0.76, indicating lesser volatility than the overall market.

Here are the factors that could influence SPHD’s performance in the upcoming months:

Fund Stats

This ETF’s stocks have a $3.14 billion average market capitalization. As of August 16, SPHD had $3.20 billion in AUM and a Net Asset Value (NAV) of $40.94. Its expense ratio of 0.30% is lower than the category average of 0.70%. SPHD’s fund inflows reached $455.71 million over the past two years.

Top Holdings

SPHD’s top sector is Utilities, with 16.7% weight, followed by Real Estate, with 16.4% weight; Consumer Staples, with 14.1% weight; Health Care, with 13.3% weight; and Materials, with 12.5% weight.

SPHD’s top holdings include Verizon Communications Inc. (VZ), with a 2.93% weight; Altria Group Inc. (MO), with a 2.93% weight; AT&T Inc. (T), with a 2.83% weight; Walgreens Boots Alliance Inc. (WBA), with a 2.70% weight, and Kinder Morgan Inc. (KMI), with a 2.66% weight.

It has a total of 52 holdings currently, with its top 10 assets comprising 26.75% of its AUM.

Attractive Dividend

SPHD has a trailing-12-month dividend of $1.76, which yields 4.27% on the current price. The fund has a four-year average yield of 4.27%. Its dividend payouts have increased at a 2.9% CAGR over the past five years.

POWR Ratings Reflect Promising Prospects

SPHD’s solid fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

The ETF has a B grade for Buy and Hold, consistent with the relatively safe margin between its current price and its 52-week high price of $47.04. It has a Peer grade of B.

SPHD is ranked #62 of 87 stocks in the Large Cap Value ETFs category.

Click here to see the POWR Ratings for SPHD (Trade).

View all the top stocks in the Large Cap Value ETFs group here.

Bottom Line

Large-cap, low-volatility financial instruments generally act as a robust medium for investors maneuvering through the unpredictability of market movements. Dividends offer an additional protective layer, guaranteeing steady yields for investors.

SPHD allocates its investments into dividend-paying large-cap equities characterized by minimal volatility. It maintains an expansive portfolio of holdings in well-established, high-yield businesses renowned for their impressive record of capital returns to shareholders. Consequently, it holds significant promise in helping investors navigate the volatility of current financial waters.

How does Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) Stack up Against Its Peers?

SPHD has an overall POWR Rating of B, which equates to a Buy. Investors could also consider looking at its peers in the Large Cap Value ETFs category, Vanguard Value ETF (VTV), iShares Russell 1000 Value ETF (IWD), Vanguard High Dividend Yield ETF (VYM), with an A (Strong Buy) rating.

What To Do Next?

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SPHD shares fell $0.04 (-0.10%) in premarket trading Thursday. Year-to-date, SPHD has declined -4.38%, versus a 16.28% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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