News

Making its debut on 12/16/2015, smart beta exchange traded fund Invesco Dow Jones Industrial Average Dividend ETF (DJD) provides investors broad exposure to the Style Box - Large Cap Blend category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

Managed by Invesco, DJD has amassed assets over $289.87 million, making it one of the average sized ETFs in the Style Box - Large Cap Blend. Before fees and expenses, DJD seeks to match the performance of the Dow Jones Industrial Average Yield Weighted index.

The Dow Jones Industrial Average Yield Weighted Index provides exposure to high-yielding equity securities in the Dow Jones Industrial Average by their 12-month dividend yield over the prior 12 months.

Cost & Other Expenses

When considering an ETF's total return, expense ratios are an important factor. And, cheaper funds can significantly outperform their more expensive cousins in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.07%, making it one of the least expensive products in the space.

It's 12-month trailing dividend yield comes in at 2.61%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Industrials sector - about 15.70% of the portfolio. Healthcare and Financials round out the top three.

Looking at individual holdings, 3m Co (MMM) accounts for about 10.12% of total assets, followed by Verizon Communications Inc (VZ) and Dow Inc (DOW).

The top 10 holdings account for about 60.99% of total assets under management.

Performance and Risk

So far this year, DJD has added about 3.77%, and was up about 13.84% in the last one year (as of 07/08/2024). During this past 52-week period, the fund has traded between $39.87 and $48.72.

The ETF has a beta of 0.81 and standard deviation of 13.73% for the trailing three-year period. With about 29 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco Dow Jones Industrial Average Dividend ETF is a reasonable option for investors seeking to outperform the Style Box - Large Cap Blend segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Core S&P 500 ETF (IVV) tracks S&P 500 Index and the SPDR S&P 500 ETF (SPY) tracks S&P 500 Index. IShares Core S&P 500 ETF has $502.59 billion in assets, SPDR S&P 500 ETF has $556.70 billion. IVV has an expense ratio of 0.03% and SPY charges 0.09%.

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 Blend.

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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