Legg Mason Low Volatility High Dividend ETF (LVHD) Pays Off
Low-volatility funds like the Legg Mason Low Volatility High Dividend ETF have held up well during this year's market turbulence.
Low-volatility funds, which aim to offer a smoother ride, are living up to their name.
Since the start of the year, U.S. stock funds with low-volatility strategies have dipped 7.7% on average, while the S&P 500 Index has lost 13.1%. The Legg Mason Low Volatility High Dividend ETF (LVHD) has held up better than both, with a 2.2% loss.
The fund is flourishing in an economic environment of higher inflation and rising interest rates. It tracks an index that favors high-quality firms with above-average dividend yields that have steady and ample profits to sustain payouts, as well as low share-price volatility.
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"We want to be boring and find mature companies with predictable earnings," says Michael LaBella, a senior portfolio manager for fund sponsor Franklin Templeton Investment Solutions.
The portfolio tilts toward utilities, consumer staples and real estate stocks. But no sector can make up more than 25% of assets. And the fund's sector preferences can shift. Lockheed Martin (LMT), Coca-Cola (KO) and Johnson & Johnson (JNJ) are among the fund's biggest holdings.
Don't expect low-volatility funds to outperform every market correction. These funds lagged the S&P 500 in 2020, for instance. The Legg Mason Low Volatility High Dividend struggled because it shuns firms that lack earnings and dividends, and thus it didn't own the growthy, pandemic-themed stocks – think Zoom (ZM) – that were rewarded that year.
The ETF's 10.2% annualized three-year return lagged the S&P 500's, but over that time, the fund was 5% less volatile. It boasts a 3.06% dividend yield.
Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.
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