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

That's where Brentview's actively managed approach we think can be a value add to 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.

I'm Britney Mason with ETF Guide and it's great to have you with us. If you're new to ETFU TV, be sure to hit the subscribe button to join our community. Also post your likes and comments in the section below this video. We enjoy interacting with our viewers. 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. From our standpoint, we do think the potential for higher for longer is definitely there given some of the recent policies that have come about as a result of the resulting trade wars that have been on the rise over the past few months since the new administration has taken hold. But we think there's opportunity regardless and it's definitely there's definitely a level of uncertainty in the market environment.

So there's actually a case for both sides of the fence in terms of the Federal Reserve holding interest rates tight and holding them higher for longer, but there's also a case for them to potentially cut interest rates as well should global growth in the United States end up slowing down as a result of the trade wars and as a result of the potential for higher inflation expectations and the potential of deregulation though it could potentially keep interest rates higher for longer. And we think the policy we think the overall solution for the higher for longer environment could potentially to look at different types of credit assets particularly on the short end of the interest rate curve but also straying towards different types of alternative asset classes in the fixed income market. So we think like the securitized credit markets could be an interesting way for investors to potentially receive inflation beating returns while being able to maintain elevated levels of income potential.

And on the flip side if interest rates do continue to fall beyond the current rate that we're seeing right now the federal funds rate is portraying, we think like equity income could potentially be a nice opportunity for the current time period because interest rates fall, bonds become less attractive from an income standpoint. Equity income might be the perfect mousetrap for investors as a way to naturally get income but also achieve a level of diversification because high dividend strategies tend to stray away from some of those high growth high-tech names that have been 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 great question and PFLD is definitely our flagship fund here at AAM and 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 it's very simple it's an index based strategy it's starting off with the broader exchange traded US dollar denominated preferred stock universe and the strategy that's index is essentially enacting two different screens the first screen and the name definitely alludes to this given it's a low duration strategy is its duration screen.

PFLD and its index will essentially remove any preferred stock from its initial universe that has an option adjusted duration above 5 years. So naturally in an elevated interest rate environment, PFLD could potentially be a good mousetrap for an investor to still receive an elevated level of tax efficient income that preferred stock investors enjoy but at a lower duration level and potentially at a lower level of volatility. But on the flip side, if interest rates fall, PFLD is definitely what we consider to be an evergreen strategy.

And the second screen that it implements personifies this. And what this screen is is essentially a call risk screen. So on top of that duration screen, eligible preferred stocks in PFLD will essentially be removed if they're trading at a 5% premium to their face value, thus limiting potential reinvestment risk within the end portfolio and limiting the amount of call risk potential by the issuers of such preferred stocks. So regardless of the environment and how the interest rate landscape ends up panning out we definitely think PLD can be a nice way for investors to receive tax efficient income at elevated levels relative 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. Loi is our newest launch and definitely personifies what AM looks to do in terms of bringing 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 subadvisor is an affiliate company of AAM SLC fixed income. They managed over a hundred billion dollars in fixed income assets and this strategy is already in existence in the SMA format and we're really excited to bring it to the ETF rapper and democratize access for investors. And the strategy is it's a bottoms up fundamental bond picker strategy managed by the experts 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 the SLC low duration income ETF Loi will essentially be duration neutral to its benchmark which is the Bloomberg 1 to threeyear government credit index.

So expected duration, anywhere from 1 to two years from what we've seen since the fund has launched. So again, could potentially be a nice mousetrap for investors to lower the duration of a core portfolio. But for investors that are seeking to put, deploy cash to work and are willing to take on the credit risk that comes with a portfolio, like Loi and the a slight slighter, level of modestly higher level of duration risk that comes with a portfolio like Loi, could definitely be a way to continue outpacing inflation through the elevated levels of income potential that Loi seeks to achieve through not just corporate credit, but securitized assets as well, which is definitely where a lot of the value added the portfolio 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 mean I think definitely setting the stage for the differences between the types of strategies that SPDV and BDIV are implementing is 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 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 core strategy, a quality value factor type strategy that uses dividend growth as a way as a mechanism to achieve a nice fundamentally sound portfolio.

SPDV does something similar but concentrating on high dividend yielders. So to just to break down each ETF really quickly. SPDV is looking as I mentioned high dividend yielders but also looking for high free cash flow yielders within its portfolio of the high dividend and high free cash flow yielding companies from the S&P 500. The top scores from each gig sector the top five scores from each gig sector will be chosen. So 55 stocks total the portfolio will be equally weighted upon a rebalance.

So it can also be looked at as a deep value play and no magnificent seven exposure because of the concentration towards high dividend yielders overweighting defensive sectors that have done pretty well year-to- date is something that we really like about SBDV in the in the current environment. And to pivot over to BD it's a new it's a new launch that AM came to market with at the end of July of 2024 similar to Loi again it's bringing an institutional grade strategy to the market and no better experts than than Brent new investment management who has decades of experience in dividend growth investing in order to just to summarize the overall value add that Biv definitely brings relative to the other solutions in the market is that it really does take an unconstrained approach 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, how many years has this stock grown its dividend over x amount of time frames.

So looking at 5 years or 20 years or 25 years, we believe to be a little bit subjective in terms of in indexing this type of approach. That's where Brent view's actively managed approach we think can be a value add to 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 two different schools of thought. Both definitely have their own interesting use cases. 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. The link is posted in the description below. And don't forget to hit the subscribe button and the comment section below. I am Britney Mason with ETF guide. Thanks for watching.