Active ETF Strategies Aimed at Faster Dividend Growth vs. the S&P 500

That's where, you know, Brent view's actively managed approach we think can be a value ad to, you know, get a little bit more growth in the portfolio.

With that being a goal of the overall portfolio management team is faster dividend growth rate than the S&P, higher dividend yield than the S&P with a lower beta.

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Market volatility has been rising and so has chaotic policym along with trade wars.

How can investors and advisers navigate the bumpy road?

We're pleased to have with us Chandler Nichols, vice president of ETF product at Advisor Asset Management.

Chandler, it's great to see you again.

Great to be back.

Now that we have a new administration in Washington, things have dramatically changed.

The administration has been moving swiftly to enact new policies.

Some of that has increased market volatility.

So, how should investors and advisers be thinking about their income portfolio allocations going forward?

It's a great question. you know, from from our standpoint, you know, we do think the the potential for higher for longer is definitely there given some of the the recent policies that have uh that have come about uh as a result of the the resulting trade wars that have been uh you know that have definitely been on the rise over the past few months since the new administration has taken uh has taken hold.

Um but we think there's opportunity regardless and uh you know it's definitely um there's definitely a level of uncertainty in the market environment.

So there there's actually a case for for both sides of the fence in terms of the Federal Reserve holding interest rates tight uh and holding it holding them higher um higher for longer, but there's also a case for them to potentially cut interest rates as well should global uh should uh the the growth in the United States end up slowing down as a result of the trade wars um and as a result of uh of the potential for higher inflation expectations and um and the potential of deregulation though it could potentially keep interest rates higher for longer.

And you know the we think the policy we think the overall solution for the higher for longer environment could potentially to look at you know different types of credit assets particularly on the short end of the interest rate curve um but also uh straying towards you know different types of alternative uh asset classes in the fixed income market.

So we think like the securitized credit markets could be an interesting way uh for investors to potentially receive inflation beating returns while being able to to maintain elevated levels of income potential.

Um and on you know on the flip side if uh if interest rates uh do continue to fall um you know beyond the current rate that we're that we're seeing right now the federal uh the federal funds uh rate is uh is portraying um we think like equity income could potentially be a uh a nice opportunity uh for the current time period because uh interest rates fall, bonds become less attractive from an income standpoint. equity income might be, you know, the the perfect mousetrap for investors as a way to naturally get income but also achieve a level of diversification because high dividend strategies uh tend to stray away from some of those high growth high-tech names that have been uh pretty volatile to start the year.

Why might investors and advisers want to consider preferred stocks in this environment and how might the AAM lowduration preferred and income securities ETF PLD be a potential solution?

Yeah, it's a it's a great question and PFLD is definitely our flagship fund here at AAM and uh you know just to give a background on the strategy which I think leads into the overall question regarding the portfolio use case for a strategy like PFLD uh it's very simple it's an index based strategy it's starting off with the broader exchange traded uh US dollar denominated preferred stock universe and the strategy that's index is a is essentially enacting two different screens the first screen uh and the name definitely alludes to this given it's a low duration strategy is its duration screen.

Uh PFLD and its index will essentially remove any preferred stock from its initial universe uh that has an option adjusted duration above 5 years.

So naturally in an elevated interest rate environment, you know, PFLD could potentially be a good mousetrap uh for for an investor to you know still receive an elevated level of tax efficient income that you know preferred stock investors enjoy um but at a lower duration level and potentially at a lower level of volatility.

Um but on the flip side, if interest rates fall, PFLD is definitely what we consider to be an evergreen strategy.

And you know, the second screen that it implements, uh you know, personifies this.

And uh what this screen is is essentially a call risk screen.

So on top of that duration screen, eligible preferred stocks in PFLD um will essentially be removed if they're uh if they're trading at uh a 5% premium to their face value, thus limiting potential reinvestment risk within the end portfolio uh and limiting the amount of call risk potential by the issuers of such preferred stocks.

So um you know regardless of the environment and how you know the interest rate you know landscape ends up panning out we definitely think PLD can be a nice way for investors to receive you know tax efficient income um at elevated levels relative uh to traditional corporate credit assets.

AAM launched a new actively managed fixed income ETF the AAM SLC lowduration income ETF ticker LODI.

What makes the strategy attractive in the current environment and why go active for this segment of the market?

Again, another great question.

Uh, Loi is is our newer is our newest launch and definitely personifies what what AM looks to do in terms of bringing uh different types of asset managers to market.

You know, asset managers that we've worked with in the past that have institutional grade strategies.

And that's what Loi is doing.

They're the the subadvisor is an affiliate company of a am uh SLC fixed income.

They managed over they manage over a hundred billion uh dollars in fixed in fixed income assets and this strategy is already in existence in the SMA format and we're really excited to bring it uh to the ETF rapper and democratize access for investors.

Um and the strategy is a it's a bottoms up uh fundamental you know bond picker strategy um managed by the experts at at SLC and a lot of the value added most of the value ads going to come from that bond selection process because from a duration standpoint um the the SLC low duration uh income uh ETF Loi will essentially um be duration neutral to its benchmark which is the Bloomberg 1 to threeyear uh government credit index.

So expected duration, you know, anywhere from 1 to two years from what uh from what we've seen since the since the fund has uh since uh the fund has launched.

So again, could potentially be a nice mousetrap for investors uh you know, to lower the duration of a of a core portfolio.

But for investors that are seeking to, you know, put, you know, deploy cash to work and are willing to take on the credit risk that comes with a portfolio, uh, like Loi and the a slight slighter, uh, level of modestly higher level of duration risk that comes with a portfolio like Loi, you know, could definitely be a way to to continue um, you know, um, outpacing uh, inflation through the elevated levels of income potential that Loi seeks uh, to achieve through not just corporate credit, but securitized assets as well, which is definitely where a lot of the value added the portfol. portfolio um could potentially be found.

One final question before you take off.

When markets get rocky, dividend investors don't want any surprises.

They want stability.

AM offers two dividend ETF solutions.

The AAM S&P 500 high dividend value ETF ticker SPDV and the AAM brand view dividend growth ETF ticker BDIV.

Each fund offers a unique dividend approach.

Could you tell us more?

Yeah, 100%.

I I will I mean I think definitely setting the uh the stage for the differences between the types of strategies that SPDV and BDIV are implementing uh is the basically the difference between a high dividend strategy and a dividend growth strategy.

You know, dividends in the name, but they're actually very different in terms of what they're doing here.

SPDV is seeking your highest yielders uh in terms of what its portfolio is looking for, but BD is looking for your fastest dividend growers and your highest dividend growers regardless of what their actual yields are.

So BD can be thought of more of as a a core strategy, a quality value factor type strategy um that that uses dividend growth as a way uh as a as a mechanism to achieve a a nice uh a nice fundamentally sound portfolio.

Um SPDV does something similar but concentrating on high dividend yielders.

So you know to just to break down each ETF really really quickly.

SPDV is looking as I as I mentioned high dividend yielders but also looking for high free cash flow yielders uh within its portfolio of the high uh high dividend and high free cash flow yielding uh companies from the S&P 500.

Um the top scores from each gig sector the top five scores from each gig sector will be chosen.

So 55 stocks total uh the portfolio will be equally weighted upon a rebalance.

So it can also be you know looked at as a as a deep value play and no magnificent seven exposure because of the concentration towards high dividend yielders you know overweighting defensive sectors that have done pretty well year-to- date um is something that we really like about SBDV in the in the current environment.

And uh you know to pivot over to BD uh it's a new it's a new launch that AM um came to market with um at the end of July of 2024 similar to Loi again it's bringing an institutional grade strategy to the market and you know no better experts than uh than Brent new investment management who has decades of experience in dividend growth investing um in order to you know just to summarize the overall you know value ad that Biv definitely brings relative to the other solutions in the market is that it really does take an unconstrained approach uh you know in in in the certain types of dividend growth indexes that are out there, they tend to be constrained because they're basically saying, "Hey, look, um you know, here's a you know um how many years uh h has this stock grown its dividend over x amount of uh x amount of time frames.

So um you know, looking at you know 5 years or 20 years or 25 years, we believe uh to be a little bit uh subjective in terms of um you know in indexing this type of approach.

So that's where you know Brent views actively managed approach we think can be a value ad to you know get a little bit more growth in the portfolio with that being a goal of the overall portfolio management team is faster dividend growth rate than the S&P higher dividend yield than the S&P with a lower beta.

So um two different schools of thought.

Um both definitely have their own uh interesting use cases.

Uh and we're definitely excited about these two strategies in the in the current market environment that's been pretty dominated by growth.

Thanks, Chandler, for dropping by and sharing your insights.

Thanks for having me on.

To learn more about ETF income strategies at Advisor Asset Management, be sure to visit a live.com.

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I am Britney Mason with ETF guide.

Thanks for watching.