Investors looking for high current yield and potential capital appreciation have somewhat limited pickings these days. With the launch of its QuantShares Hedged Dividend Income ETF on January 20, FFCM LLC has made the pickings a little less slim.
The QuantShares Hedged Dividend Income ETF is designed to follow the Indxx Hedged Income Index, which has been live since February 2013. In pursuit of its high dividend income objective, the fund invests in 100 stocks with attractive dividend characteristics: high dividend yield, consistent dividend payment, and/or dividend growth. The investments are selected from the 1,000 largest stocks in the Indxx Hedged Income Index and weighted equally.
Not Just Another Long-Only Fund
But the QuantShares Hedged Dividend Income ETF isn’t a long-only dividend fund. The fund will also short around 200 stocks from the same universe of 1,000 stocks. The stocks selected as short sales have little to no dividend history and low dividend yields. But despite the number of short positions doubling the number of longs, the fund is designed so that the value of the short positions is roughly half that of the longs.
“Our exemptive relief with the SEC allows us to hedge and de-risk via an index-based, long-short strategy,” said Bill DeRoche, the fund’s portfolio manager, in a press release announcing the fund’s launch.
The QuantShares Hedged Dividend Income ETF rebalances its holdings every month and reconstitutes every quarter. Its investment approach caps net exposure to no more than 12.5% per sector. The fund also pays dividends on a monthly basis, which is an attractive feature for income-oriented investors. The fund’s “monthly dividend payments, hedged portfolio, and ETF structure” offer investors a “transparent, tax efficient, and diversifying alternative” to both low-yield fixed income and higher risk equity-dividend products, according to Mr. DeRoche.
Alernative to Fixed Income
Bill Carey, CEO of QuantShares investment advisor FFCM LLC, also says the fund makes a good alternative to fixed income and other equity-dividend products. For investors in corporate bonds, Mr. Carey says the QuantShares Hedged Dividend Income ETF “may offer a higher after-tax yield with similar return and risk characteristics.” The fund also offers “a number of potential advantages over widely used equity-based income producing products,” due to its “lower risk and volatility relative to that of long-only equity strategies,” in Mr. Carey’s words.
For more information, visit the fund’s page.