Charged up by the success of its U.S. version, Legg Mason recently launched the international replica of Legg Mason Low Volatility High Dividend ETF (NASDAQ:LVHD). The new product Legg Mason International Low Volatility High Dividend ETF (BATS:LVHI) hit the market in late July. Let's delve a little deeper into the fund:
The fund looks to follow an index consisting of equity securities of developed markets outside the U.S. having characteristics like relatively high yield but low earnings volatility and price. The fund also takes care of currency translation issues, as per the issuer, as it lessens "exposure to fluctuations between the values of the U.S. dollar and other international currencies."
The fund holds 120 stocks in total. No stock accounts for more than 3.02% of the portfolio. Astrazeneca Plc (NYSE:AZN), Toyota Motor Corp. (NYSE:TM) and GlaxoSmithKline Plc (NYSE:GSK) are top three companies. The fund charges 40 bps in fees.
How Does This Fit in a Portfolio?
With the international market likely to remain rocky in the coming months on a host of issues including Brexit, persistent growth concerns, oil price upheaval, possibilities of rate hikes in the U.S. and the resultant strength in the greenback, demand for low volatile products should be strong. Low volatile products normally do not offer enormous returns in a bull market but safeguard one's portfolio to a large extent when the marker is crashing.
Moreover, interest rates are rock-bottom on the international front. The Eurozone and Japan are practicing negative rates along with several other countries, the Bank of England also recently cut rates for the first time in seven years. Against such a low-yield backdrop, the hunt for income-producing securities will be on.
Since LVHI offers both features, investors with a cautious view will find it interesting. Also, the issuer noted that since "some dividend stocks bring the risk of volatility and payout cuts," LVHI "seeks income from sustainable dividends to provide a more reliable income stream, reduced volatility, and the potential for appreciation."
Can it Succeed?
Legg Mason has already seen success with LVHD, which has amassed about $79.7 million in assets within just seven months and gained 16.7% in the year-to-date frame (as of August 4, 2016). So, it seems the theme has become popular and will give LVHI its due recognition in the days to come.
However, as far as competition is concerned, the dividend ETF space is jam-packed with products.There are products like SPDR S&P International Dividend ETF (NYSEARCA:DWX) yielding 4.65%, PowerShares International Dividend Achievers Portfolio ETF (NASDAQ:PID) yielding about 3.92%, WisdomTree International Equity Fund (NYSEARCA:DWM) yielding about 3.62%, FlexShares International Quality Dividend Index Fund (NYSEARCA:IQDF) yielding 3.71% and WisdomTree International Hedged Quality Dividend Growth Fund (NYSEARCA:IHDG) yielding 2%. So, it would be better for LVHI if it yields competitively.
However, the newly launched ETF may not yield as high as a few high-dividend ETFs do. But since PID and IQDF have almost the same investing theme as LVHI, offering dividend and stability, LVHI may face steep competition from the duo. But then, PID and IQDF charge 55 bps and 47 bps in fees, lower than LVHI, and thus provide solid opportunity to LVHI to gain considerable investor attention.