CFA Society Singapore
SINGAPORE (Sept 7): Phillip Capital is highlighting ProShares S&P 500 Dividend Aristocrats ETF (NOBL) as a defensive addition to investor portfolios, given recent geopolitical events and global market volatility.
NOBL tracks an equal-weighted index of 50 S&P 500 that have increased their dividend payouts for 25 consecutive years or more, and covers both US and international markets. The exchange-traded fund (ETF) was incepted in 2013, and its index is rebalanced each January, April, July and October with an annual reconstitution during the January rebalance.
“With several factors like the escalating tensions in North Korea and their successful nuclear tests and the coming debt-ceiling deadline, it would prudent for investors to start taking more defensive posture as valuations scale higher and to hedge their positions against any significant market correction,” advises investment analyst Ho Kang Wei in a Thursday report.
Ho provides three reasons to support his belief that NOBL could prove useful as a defensive component in the portfolios of investors who want equity exposure, income, and lower volatility.
1. Limited downside
Comparing NOBL with the S&P 500 (SPX) index’s performances over the past two major crises – the Dot-com bubble in 2000 and the Global Financial Crisis (GFC) over 2007-2008 – Phillip Capital notes that NOBL had significantly less downside. Notably, it fell by nearly 7 percentage points less than the SPX during the GFC, by 49.65% versus 56.78%.
2. The ability to recover faster
Additionally, the research house opines that NOBL has demonstrated a tendency to recover faster following crises, with NOBL having outperformed SPX on average in terms of annual returns for the four years following bottom of each of the aforementioned crises. Post the Dot-com bubble, Phillip Capital says the ETF “barely fell” by less than 1% during the crash, making its relative performance even more impressive.
“Given that the criteria for inclusion in the NOBL list is increasing dividend payments for 25 consecutive years, it is not surprising that when dividends are included for both NOBL and S&P 500 index, the difference in returns are widen further,” says Ho.
3. Strong focus on dividends
Lastly, Phillip Capital highlights that stocks in the Aristocrat list have been notably growing their dividends on an annual basis without fail since 1992 – including through the Asian Financial Crisis, the Dot-com bubble, the Sept 11 attack in 2001, the GFC and the European sovereign debt crisis in 2010. Its focus on dividends gives investors holding power to weather downturns in the market, according to the research house.
“Of course, there are no guarantees that the constituents will be able to sustain their dividend growth streaks and investors should still be aware of risk going forward. However, given that the constituents of NOBL, and by extension the portfolio, have been able to not only pay out a dividend through multiple financial crises, but also continue to increase that dividend through those crises, we are fairly certain that they would be able to maintain their dividend growth streaks,” says Ho.
“As such, we believe that with the growing dividends [from NOBL], investors will be able to better weather downturns in the market as they are paid while waiting for recovery to come.”