Among Dividend Indexes, It’s Still Important to Know What You Own

Abstract

Smart beta products allow investors to potentially increase returns, reduce risk, and diversify their portfolios. Although smart beta strategies offer a transparent, rules-based, and low-cost way to invest, the proliferation of these products heightens the need for due diligence. Now more than ever, investors need to “know what you own.” Investors will want to look under the hood and understand the index methodology each smart beta product uses to gain a better sense of what their investment experience may be.

To demonstrate how different the exposures can be in the various indexes that these products use, this study compared a high-dividend-yield index with a dividend-grower index. Dividend products are one of the largest categories among smart beta exchange-traded funds.

TOPICS: Factors, risk premia, passive strategies