Is iShares Core High Dividend ETF a Strong ETF Right Now?

The iShares Core High Dividend ETF HDV was launched on 03/29/2011, and is a smart beta exchange traded fund designed to offer broad exposure to the Style Box - Large Cap Value category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Managed by Blackrock, HDV has amassed assets over $10.15 billion, making it one of the larger ETFs in the Style Box - Large Cap Value. HDV seeks to match the performance of the Morningstar Dividend Yield Focus Index before fees and expenses.

The Morningstar Dividend Yield Focus Index offers exposure to high quality U.S. domiciled companies that have had strong financial health and an ability to sustain above average dividend payouts.

Cost & Other Expenses

For ETF investors, expense ratios are an important factor when considering a fund's return; in the long-term, cheaper funds actually have the ability to outperform their more expensive cousins if all other things remain the same.

With one of the least expensive products in the space, this ETF has annual operating expenses of 0.08%.

It has a 12-month trailing dividend yield of 3.54%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 24.90% of the portfolio, the fund has heaviest allocation to the Energy sector; Consumer Staples and Healthcare round out the top three.

Looking at individual holdings, Exxon Mobil Corp accounts for about 8.21% of total assets, followed by Chevron Corp CVX and Verizon Communications Inc VZ.

HDV's top 10 holdings account for about 52.21% of its total assets under management.

Performance and Risk

The ETF has added roughly 7.43% and is up about 12.30% so far this year and in the past one year (as of 07/09/2024), respectively. HDV has traded between $93.77 and $111.68 during this last 52-week period.

The fund has a beta of 0.79 and standard deviation of 13.33% for the trailing three-year period, which makes HDV a medium risk choice in this particular space. With about 81 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares Core High Dividend ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Russell 1000 Value ETF tracks Russell 1000 Value Index and the Vanguard Value ETF tracks CRSP U.S. Large Cap Value Index. IShares Russell 1000 Value ETF has $55.66 billion in assets, Vanguard Value ETF has $115.94 billion. IWD has an expense ratio of 0.19% and VTV charges 0.04%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Value.

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