New ETF targets stocks with 25-year dividend history

Companies have to show steady increase in returns for shareholders

Oct 20, 2013 @ 12:01 am

By Megan Durisin

ProShares this month ann-ounced a new exchange-traded fund that invests solely in S&P 500 companies that have raised their dividends for 25 straight years or more.

The move takes the firm a step away from its traditional ETF products and creates a competitor to similar funds from State Street Global Advisors and The Vanguard Group Inc.

ProShares' Aristocrats ETF (NOBL) tracks the S&P 500 Dividend Aristocrats Index, which is equally weighted and currently holds 54 companies.

14% FIVE-YEAR RETURN

According to an announcement from ProShares, the Aristocrats Index has had a five-year annualized total return of 14% and a one-year return of 23%, compared with 10% and 19% returns, respectively, for the S&P 500.

“The core theory behind the index is that companies that have a record of growing year-over-year dividends tend to be ones that may outperform the broader index over time with less volatility,” said Michael Sapir, chairman of ProShares. “We see this fund as potentially being part of a core holding in a portfolio.”

The index includes companies such as Air Products and Chemicals Inc. (APD), Dover Corp. (DOV), Emerson Electric Co. (EMR), McGraw Hill Financial Inc. (MHFI) and Walgreen Co. (WAG). NOBL will trade on the New York Stock Exchange.

ProShares has been working to expand outside the leveraged and inverse ETF sphere over the past few years with products that focus on alternative and fixed-income investments, said Robert Goldsborough, lead analyst of ProShares at Morningstar Inc.

The new fund is an out-of-the-ordinary move by ProShares, but “logical,” he said.

“Until now, what they've really rolled out have been in fairly hot, but nichey areas of the market,” Mr. Goldsborough said. “This is now a horse of a slightly different color.”

TAKING ON VANGUARD

The Aristocrats fund will compete for dollars with the Vanguard Dividend Appreciation ETF (VIG), which invests in companies that have raised dividends for at least a decade. VIG has generated a year-to-date return of 19%.

State Street offers a SPDR S&P Dividend ETF (SDY) that tracks companies in the S&P Composite 1500 Index that have increased dividends for at least 20 straight years. The fund has had a year-to-date return of 16%.

The new ProShares ETF is safer than ProShares' leveraged and inverse funds, which Morningstar doesn't recommend, Mr. Goldsborough said.

“I think people who are looking for income and quality, and intrigued by fundamental indexing, should consider this one,” he said. “I think it can add some value.”

Mr. Sapir agrees that the new fund will represent a different turn for the company, but one that represents a “very, very compelling investment story.”

“There are other dividend-growing funds out there,” he said. “We think this has a unique proposition behind it.”

mdurisin@investmentnews.com Twitter: @megandurisin

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