Is iShares Select Dividend ETF (DVY) a Strong ETF Right Now?

Designed to provide broad exposure to the Style Box - Large Cap Value category of the market, the iShares Select Dividend ETF (DVY) is a smart beta exchange traded fund launched on 11/03/2003.

What Are Smart Beta ETFs?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

Market cap weighted indexes work great for investors who believe in market efficiency. They provide a low-cost, convenient and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

DVY is managed by Blackrock, and this fund has amassed over $20.43 billion, which makes it one of the largest ETFs in the Style Box - Large Cap Value. DVY, before fees and expenses, seeks to match the performance of the Dow Jones U.S. Select Dividend Index.

The Dow Jones U.S. Select Dividend Index measures the performance of a selected group of equity securities issued by companies that have provided relatively high dividend yields on a consistent basis over time.

Cost & Other Expenses

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

With on par with most peer products in the space, this ETF has annual operating expenses of 0.38%.

The fund has a 12-month trailing dividend yield of 3.11%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 26.90% of the portfolio, the fund has heaviest allocation to the Utilities sector; Financials and Energy round out the top three.

When you look at individual holdings, Oneok Inc (OKE) accounts for about 2.81% of the fund's total assets, followed by Altria Group Inc (MO) and Exxon Mobil Corp (XOM).

DVY's top 10 holdings account for about 14.18% of its total assets under management.

Performance and Risk

The ETF has lost about -0.15% so far this year and it's up approximately 12.46% in the last one year (as of 03/09/2022). In the past 52-week period, it has traded between $111.97 and $127.71.

The fund has a beta of 0.91 and standard deviation of 25.45% for the trailing three-year period, which makes DVY a medium risk choice in this particular space. With about 106 holdings, it effectively diversifies company-specific risk.

Alternatives

IShares Select Dividend ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Value segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Russell 1000 Value ETF (IWD) tracks Russell 1000 Value Index and the Vanguard Value ETF (VTV) tracks CRSP U.S. Large Cap Value Index. IShares Russell 1000 Value ETF has $54.98 billion in assets, Vanguard Value ETF has $90.77 billion. IWD has an expense ratio of 0.19% and VTV charges 0.04%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Style Box - Large Cap Value.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.