Franklin, Tennessee – The Franklin U.S. Low Volatility High Dividend Index ETF (NASDAQ:LVHD) presents itself as a solution to reducing the volatility of dividend portfolios amidst market fluctuations. However, a closer look reveals that the ETF’s performance may not live up to its promises. Since 2022, skepticism has surrounded the strategy, particularly due to lackluster total returns. While LVHD did offer some protection during market downturns, it struggled to keep pace with the market recovery, raising concerns about its effectiveness.

The investment strategy of LVHD involves tracking the Franklin Low Volatility High Dividend Index, which selects profitable companies with the potential for sustainable high dividend yields. The portfolio is weighted to minimize individual component and sector concentration, with an annual reconstitution and quarterly rebalancing schedule in place. Despite these efforts, LVHD has underperformed major benchmarks like the S&P 500, suggesting potential drawbacks in its composition.

Notably, LVHD’s portfolio consists of predominantly defensive sectors such as utilities and consumer staples, with significant changes observed in recent months. While the ETF emphasizes quality and value in its holdings, growth prospects appear stagnant, impacting overall performance. Dividend credentials are robust, with a weighted-average dividend yield of 4.2%, but growth rates remain tepid. Additionally, LVHD’s exposure to high-beta stocks is limited, resulting in relatively low volatility levels compared to the market.

Overall, the combination of factors in LVHD’s portfolio raises questions about its ability to generate alpha in the current market environment. While the ETF offers stability in volatile times, its performance may be hindered by factors such as limited growth opportunities and a cautious approach to higher-risk equities. Therefore, maintaining a hold rating on LVHD seems prudent until further improvements are observed in its performance metrics.