SPHD: It Has Probably Peaked For Now

seekingalpha11-20 22:48

The Invesco S&P 500® High Dividend Low Volatility ETF targets high-yield, low-volatility stocks, while using a z-score strategy to exclude outliers and standardize picks.SPHD has shown strong ...

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However, a Trump presidency and changing interest rates might alter the vehicle's prospects, which is why we decided to cover it in today's article. This report follows a systematic approach whil","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4585":"ETF&股票定投概念","SPHD":"标普500高股利投资组合ETF-PowerShares","BK4588":"碎股"},"translate_title":"SPHD：目前可能已经见顶","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SPHD":0.9},"content_text":"The Invesco S&P 500® High Dividend Low Volatility ETF targets high-yield, low-volatility stocks, while using a z-score strategy to exclude outliers and standardize picks.SPHD has shown strong performance since 2022, and sports a return-on-equity ratio of 14%, a P/E ratio of 15.12x, and a P/B ratio of 2.41x.With decreasing U.S. interest rates and rising consumer sentiment, investors may shift towards riskier, capital gains-based assets rather than income-generating, low-volatility stocks.Given the current economic environment, it's time to reassess SPHD's viability, as it may underperform compared to riskier assets in a rate-cut cycle.   10'000 Hours  The Invesco S&P 500® High Dividend Low Volatility ETF (NYSEARCA:SPHD) has enjoyed a solid run amid elevated U.S. interest rates and an uncertain economic outlook. However, a Trump presidency and changing interest rates might alter the vehicle's prospects, which is why we decided to cover it in today's article. This report follows a systematic approach while incorporating certain stock-specific factors to determine whether SPHD ETF's latest form will be sustained. With all that being said, let's get into the thick of things! What Is SPHD? The Invesco S&P 500® High Dividend Low Volatility ETF is a tracker fund that follows the S&P 500 Low Volatility High Dividend Index. Methodologically, the fund's index is pro-dividend yield, pro-dividend growth, pro-momentum, and ex-volatility. Essentially, it screens for stocks with the mentioned characteristics, sets them into quantiles, and invests in the upper quantile. Low Volatility High Dividend Index Methodology (MSCI) Something that I left out when I explained the methodology was outlier detection. While the ETF screens for high-yield, low-volatility stocks, it implements a z-score strategy to standardize its picks. To our knowledge, this means that SPHD ETF scales its stock performance to exclude stocks with wild price swings. An example of standardization is shown below. Note That X Refers To The Return (ThoughtCo) Collectively, the ETF's screener produced a vehicle that possesses a return-on-equity ratio of above 14%. For those unaware, the ROE ratio shows how profitable the ETF's constituents are relative to their number of shares issued and often represents a metric to measure shareholder returns. Furthermore, the ETF has an average price-to-earnings ratio of 15.12x and a price-to-book ratio of 2.41x, all while hosting an SEC 30-day yield of about 4.11%.   Fund Details (Invesco) Historical Factor Performance Investors often prefer dividend stocks whenever interest rates increase to protect against economic contraction and inflation. The core idea is that dividend stocks provide a natural hedge against economic risk and inflation through exposure to solid companies with high income-based components. Although a slightly vague observation, the following diagram illustrates how investors opted for dividend stocks when interest rates increased in 2022 and divested when an interest rate cut narrative started last year. Also, notice how high-dividend stocks trailed other sectors like growth and value in 2020/21 when interest rates were low and economic stimulus occurred. Factor Performance - Click on Image To Enlarge (KoyFin) We've discussed high-dividend stocks so far but ignored low volatility. The relationship between low volatility and interest rates remains unclear. However, some analysts, including MSCI, suggest that low-volatility stocks outperform during bear markets. This makes intuitive sense as investors usually enter a risk-off period whenever markets are murky. Low-Volatility Factor Performance (MSCI) So, where are we at? We have a case where high-dividend and low-volatility stocks have delivered comprehensive results since U.S. interest rates started increasing in 2022. In line with that, the Invesco S&P 500® High Dividend Low Volatility ETF has done quite well, providing a higher total return than the SPY ETF (SPY). However, U.S. interest rates have decreased in the past months, and a new president has been elected. So, it makes for a good time to revise this vehicle's systematic variables. Data by YCharts The U.S. Fed Funds rate has decreased sharply, and we won't be surprised if additional interest rate cuts occur. Moreover, inflation is back near the Fed's target of 2%, meaning asset discount rates will likely read much better than when interest rates. Therefore, we believe investors might opt for riskier capital gains-based assets in this rate-cut cycle instead of income-generating, low-volatility stocks. Data by YCharts Furthermore, U.S. consumer sentiment has improved in recent months, showing a more bullish real economic outlook in the United States. Other factors must be considered before consolidating an economic trajectory, but consumer confidence provides a good starting point. Here is a look at consumer confidence. U.S. Consumer Confidence (Trading Economics, University of Michigan) Here are additional economic factors to consider. U.S. Economic Indicators (Trading Economics) Lastly, herewith are links that explain why smaller and growth stocks assets might outperform in a lower interest rate environment. In conjunction, I would keep in mind that SPHD is arguably the opposite as it comprises large-cap, mature stocks. Constituents, Valuation Metrics, and Dividends The Invesco S&P 500® High Dividend Low Volatility ETF's sectoral exposure is very utility and consumer defensive orientated (low beta sectors). The ETF's mandate means its sector exposure may change with time. Nevertheless, its emphasis on mature companies with low volatility and high dividends convey that it will likely stay true to defensive type stocks. We don't necessarily deem the ETF's sectoral exposure unfavourable. However, as previously mentioned, we think higher risk assets are more likely to perform than low-risk stocks for now. Seeking Alpha The following diagram showcases the ETF's top ten holdings (spanning about 27% of the portfolio) and some of their key metrics. I alluded to the ETF's price-to-book, price-to-earnings, and return on common equity earlier. However, I decided to cover a few of SPHD ETF's alternative metrics in a discreet section. Aside: ROTC refers to return on total capital, and the dividend yields are trailing figures.   Stock PEG ROTC Dividend Yield   Altria (MO) 0.46x 34.28% 7.09%   Kinder Morgan (KMI) 6.5x 4.24% 4.08%   Bristol-Myers (BMY) 4.8x (Fwd.) 8.20% 4.23%   AT&T (T) 7.03x (Fwd.) 5.88% 4.88%   Verizon (VZ) 3.81x (Fwd.) 6.90% 6.37%   ONEOK (OKE) 3x (Fwd.) 6.84% 3.52%   Crown Castle (CCI) N/A 4.09% 5.99%   Simon Property (SPG) N/A 6.54% 4.37%   VICI Properties (VICI) N/A 5.30% 5.26%   Phillip Morris (PM) 1.9x (Fwd.) 20.85% 3.99%   Click to enlarge Source: Seeking Alpha - Note that \"Fwd.\" refers to Forward. The forward metrics are non-GAAP. The REITs' PEG ratios were avoided. A view of the ETF's core constituents show that they present high dividend yields and positive returns on total capital. We believe this illustrates sustainable investor pass through. However, PEG ratios are mostly above 1x, which somewhat confirms that the ETF is invested in mature, slower growth companies. As previously mentioned, evidence and judgement of the current market environment led us to a pro-risk, pro-growth outlook. We aren't bearish about the ETF's sector and stock-specific composition, instead we think money can be better placed elsewhere. Final Word Our analysis of the Invesco S&P 500® High Dividend Low Volatility ETF's key driving forces paints a different picture to what we've observed in recent years. Firstly, a declining interest rate environment might work against dividend stocks with low volatility components. In addition to that, we might witness a scenario where an enhanced consumer sentiment spills over into the stock market through an improved nominal earnings outlook. To consolidate our argument, we looked at key valuation metrics and dividend yields, leading us to believe that the ETF's momentum might stall going into the next economic cycle.  We aren't bearish about SPHD, instead, we believe its glorious run might lose steam going into 2025!","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484148620"}