Why not put everything in SPHD and be done with it?

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Keenobserver
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Why not put everything in SPHD and be done with it?

Post by Keenobserver »

As per title, looking for reasons why one should not just put it all in SPHD and be done with it?
PowerShares S&P 500 High Dividend Low Volatility Portfolio (ticker: SPHD).
Last edited by Keenobserver on Mon May 10, 2021 1:31 pm, edited 1 time in total.
UpperNwGuy
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Re: Why not put everything in SPHD and be done with it?

Post by UpperNwGuy »

Keenobserver wrote: Mon May 10, 2021 1:26 pm As per title, looking for reasons why one should not just put it all in SPHD and be done with it?
What is SPHD? Can you spell it out for those of us who hate going to google every five minutes as we read bogleheads tickerspeak?
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Re: Why not put everything in SPHD and be done with it?

Post by Keenobserver »

UpperNwGuy wrote: Mon May 10, 2021 1:28 pm
Keenobserver wrote: Mon May 10, 2021 1:26 pm As per title, looking for reasons why one should not just put it all in SPHD and be done with it?
What is SPHD? Can you spell it out for those of us who hate going to google every five minutes as we read bogleheads tickerspeak?
done
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Re: Why not put everything in SPHD and be done with it?

Post by wetgear »

Medium high expenses and limited diversification (Only 51 total holdings). There are many funds that may be appropriate to put everything into depending on individual circumstances (Target Retirement Funds, Life Strategy, VT, VTI...) but I don't think SPHD makes that list.
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Re: Why not put everything in SPHD and be done with it?

Post by TomatoTomahto »

Uh, let me ask the other way. Why would I want any high dividend low volatility S&P 500 (or whatever SPHD is), much less everything in that fund?
I get the FI part but not the RE part of FIRE.
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Re: Why not put everything in SPHD and be done with it?

Post by CAsage »

A big chunk of market growth is appreciation (possibly aka speculation). Dividends drive growth, but are not the only return. And 51 stocks is in no way diversified enough for me. International for example? Expense ratio of 0.3% not bad, but Total Stock is way lower.
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Re: Why not put everything in SPHD and be done with it?

Post by Dave55 »

SPHD is an extreme value fund, with a lot of emphasis on yield as noted by a heavy dose of utilities, real estate, energy and consumer defensive stocks. Performance wise it has lagged it's own index (Russell 1000 Value) by quite a bit, as well as its category (Value). In 2020 it underperformed each by -12%, and in 2019 underperformed by -4% and -6%. It could be used as a satellite holding, but there are much better choices for a core holding or a core value holding.

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Re: Why not put everything in SPHD and be done with it?

Post by jebmke »

CAsage wrote: Mon May 10, 2021 2:08 pm A big chunk of market growth is appreciation (possibly aka speculation). Dividends drive growth, but are not the only return. And 51 stocks is in no way diversified enough for me. International for example? Expense ratio of 0.3% not bad, but Total Stock is way lower.
Even if one wants a value tilt, the ER is much lower if you use the indexes. 7bp is the highest of the VG value indexes.
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Re: Why not put everything in SPHD and be done with it?

Post by delamer »

Everything at what age, income, portfolio size, job status?

We have posters in their 20’s just starting their careers and accumulating assets, retirees in their 80’s who are spending down their portfolios, and every conceivable permutation in between.
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Re: Why not put everything in SPHD and be done with it?

Post by EfficientInvestor »

Because it has underperformed the S&P 500 by 4%/year since inception and has been more volatile than the S&P 500 since inception.
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Re: Why not put everything in SPHD and be done with it?

Post by bumbojumbo »

Invesco hits the highpoints of why someone may not want to invest in their SPHD fund:
Investments focused in a particular industry or sector are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.

Securities that pay high dividends as a group can fall out of favor with the market, causing such companies to underperform companies that do not pay high dividends.

There is no assurance that the Fund will provide low volatility.
https://www.invesco.com/us/financial-pr ... icker=SPHD
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Re: Why not put everything in SPHD and be done with it?

Post by willthrill81 »

This has been hashed out in literally dozens of threads. There's nothing special about dividends except that they aren't taxed as efficiently as is capital appreciation. The charts below from Karsten, who runs Early Retirement Now, explain a lot. The post with those graphics, the link to which is below, is well worth reading.

Image
Image
https://earlyretirementnow.com/2019/02/ ... s-part-29/
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Re: Why not put everything in SPHD and be done with it?

Post by David Jay »

EfficientInvestor wrote: Mon May 10, 2021 4:45 pm Because it has underperformed the S&P 500 by 4%/year since inception and has been more volatile than the S&P 500 since inception.
Nice. The "Low Volatility" named fund has higher volatility than the parent SP500.
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Re: Why not put everything in SPHD and be done with it?

Post by neverpanic »

TomatoTomahto wrote: Mon May 10, 2021 1:39 pm Uh, let me ask the other way. Why would I want any high dividend low volatility S&P 500 (or whatever SPHD is), much less everything in that fund?
That's the question for me.

I love diversity and I love speculation. SPHD has an 8-year history filled with reasons to put $0 into it.

$10,000 investment Oct 2012-Dec 2020 using the portfoliovisualizer:

SPHD: $20,680

VTI: $30,972
VOO: $30,749
FXAIX: $30,840
SPY: $30,600
VUG: $38,759
QQQ: $49,822

Oh, I should probably mention that past performance is no guarantee of future results, but I'd be willing to bet that SPHD will continue to trail behind the field.
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Re: Why not put everything in SPHD and be done with it?

Post by nisiprius »

I don't understand where you got the idea of "putting everything in SPHD and being done with it." That is, what's your reason for doing such a thing?

Hopefully, you aren't just basing this on a too-casual glance at the phrases "high dividend" and "low volatility." "High dividend" does not mean you necessarily make more money. It just means you make it in a different way. Stocks make money for you through dividend payments and through capital appreciation (increase in price per share). To a rough approximation, stocks are stocks and make you about the same money--the ones that pay lower dividends make up for it in capital appreciation and vice versa. "High dividend" stocks just means stocks, more of whose return comes to you in the form of dividends (and less in the form of capital appreciation).

"Low volatility" is misleading, too. First, it's just a prediction, an expectation, or a hope. This is a group of stocks that are expected to show lower volatility. Just because they are expected to do it doesn't mean they necessarily will. Adding bonds is a robust, reliable way to lower volatility. Just picking stocks that are supposed to have lower volatility isn't.

SPHD didn't exist in 2008-2009--a red flag for evaluating any claims about volatility. But even if we look at 2020, we see that during 2020, when the Vanguard Total Stock Market Index Fund fell -32%, SPHD fell -41%. So if you think "low volatility stocks" implies shallower plunges--well, it didn't in 2020.

Source

Image

There probably isn't anything terribly wrong with SPHD, but you need to explain why you think there is something particularly good about it.

High-dividend stocks and low-volatility stocks are specialties. Each has its fan coterie and its fans will argue that they are just plain better than the average of the stock market as a whole. It's possible but it's certainly not cut-and-dried.

Low volatility is mentioned in the context of the "low volatility anomaly." It certainly seems to be possible to identify stocks that tend to have lower volatility than the whole stock market. But according to usual expectations, that should go together with lower average return. When we add bonds, we reliably lower volatility, and we lower return at the same time. The low volatility anomaly seems to be a claim that you can get a free lunch--just by choosing the right stocks, you can get the lower volatility without adding bonds and without lowering returns. One point is that it is an anomaly--something that shouldn't happen. Another is that anomalies have a tendency show a decline effect--to go away when they become widely publicized, as the low-vol anomaly has been.

What can be said is that in the short time it has been available, SPHD has neither had lower volatility nor just as high a return as the total stock market.
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Re: Why not put everything in SPHD and be done with it?

Post by abuss368 »

Keenobserver wrote: Mon May 10, 2021 1:26 pm As per title, looking for reasons why one should not just put it all in SPHD and be done with it?
PowerShares S&P 500 High Dividend Low Volatility Portfolio (ticker: SPHD).
Have you considered the S&P 500 High Dividend fund - SPYD?

What made you consider SPHD over SPYD?

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Re: Why not put everything in SPHD and be done with it?

Post by Northern Flicker »

Instead if asking us why you should not use the proposed plan, maybe you want to try to articulate why a portfolio of 50 stocks makes for an adequate single holding. Most of us would consider it to be entirely inadequate from a diversification perspective.
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Re: Why not put everything in SPHD and be done with it?

Post by watchnerd »

Because it's not the whole market.

By tilting, it has a strategy akin to that of an active manager, and we know what those results are like. Namely...

Over a long time, the variances in alternate histories averages out to the total market return.

But with more expense.
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Re: Why not put everything in SPHD and be done with it?

Post by MishkaWorries »

It seems SCHD Schwab's dividend ETF is considered the best dividend ETF now. Much better total return than SPHD, less volitility, more diverse, 0.06 ER and about the same percent dividend.

Or VYM Vanguards dividend ETF. Way more diverse, 0.06 ER, about the same total return as SPHD and about the same percent dividend.

Not sure what you're seeing in SPHD.

Schwab offers a new international dividend ETF SCHY and Vanguard has VYMI if you want international exposure.
Last edited by MishkaWorries on Mon May 10, 2021 10:54 pm, edited 1 time in total.
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Re: Why not put everything in SPHD and be done with it?

Post by MishkaWorries »

Duplicate
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JoMoney
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Re: Why not put everything in SPHD and be done with it?

Post by JoMoney »

The expense ratio would be enough to turn me off of it.

Beyond that, even presuming I really liked dividends and wanted a dividend portfolio, the payout of SPHD has been less consistent then other dividend funds - In 2017 and 2019 SPHD paid out less in dividends then it did a year prior.
FWIW, since 2010 VYM (Vanguard's market cap weighted high dividend fund) has paid out higher dividends each year then the year prior. There was a dividend drop in 2009-2010 , when pretty much the entire banking industry was prohibited from paying dividends under the TARP bailout terms.
Looks like SCHD (Schwab's Dividend ETF) since it's 2012 start has also had better/consistent/rising dividend payouts.
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Re: Why not put everything in SPHD and be done with it?

Post by Brianmcg321 »

Because I like making money. If I ever feel I have too much, I’ll consider this as an option.
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Re: Why not put everything in SPHD and be done with it?

Post by burritoLover »

10 years of back-testing is utterly useless - in fact back-testing is practically useless for comparing any funds. But I do love how people here will rake someone over the coals asking about a concentrated position such as QQQ based on its outperformance the last 10 years but then use the same ten years to lambast someone asking about a dividend or value fund that has severely underperformed in the last 10 years.

If going all-in on SCHD helps the OP stay the course cause they believe in magic dividend money then that is more important than potentially being too concentrated in underperforming dividend stocks. Although I would probably balance it out with a dividend appreciation fund.
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Re: Why not put everything in SPHD and be done with it?

Post by Keenobserver »

Great responses thus far. Im not considering going all in on this ETF. As a member/ student of this forum, I know better thanks to all my mentors here. I just needed intelligent arguments to counter/ educate coworkers who sing the praises of such ETFs. Although, reading all the reponses here has been reassuring for my own peace of mind as well. Its one of those arguments that keeps resurficing; " why not buy high dividend low volatility ETF?"
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Re: Why not put everything in SPHD and be done with it?

Post by TomatoTomahto »

Keenobserver wrote: Tue May 11, 2021 9:28 am Great responses thus far. Im not considering going all in on this ETF. As a member/ student of this forum, I know better thanks to all my mentors here. I just needed intelligent arguments to counter/ educate coworkers who sing the praises of such ETFs. Although, reading all the reponses here has been reassuring for my own peace of mind as well. Its one of those arguments that keeps resurficing; " why not buy high dividend low volatility ETF?"
Not that I agree with them, but you have a better class of co-worker than many. Many co-workers are touting whatever the meme stock is today. :beer
I get the FI part but not the RE part of FIRE.
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Re: Why not put everything in SPHD and be done with it?

Post by nisiprius »

burritoLover wrote: Tue May 11, 2021 6:59 am 10 years of back-testing is utterly useless - in fact back-testing is practically useless for comparing any funds. But I do love how people here will rake someone over the coals asking about a concentrated position such as QQQ based on its outperformance the last 10 years but then use the same ten years to lambast someone asking about a dividend or value fund that has severely underperformed in the last 10 years.

If going all-in on SCHD helps the OP stay the course cause they believe in magic dividend money then that is more important than potentially being too concentrated in underperforming dividend stocks. Although I would probably balance it out with a dividend appreciation fund.
I didn't do ten years of back-testing. I looked at something specific, which was the behavior of a fund with the words "low volatility" in its name during a conveniently recent period of extreme stock-market volatility.

Backtesting isn't valid for deciding which fund will have the highest return going forward. However, it is very reasonable to investigate to test claims that a fund should be expected to behave in particular ways under particular conditions. How reasonable depends on the claim, and I don't know what was being claimed for the fund. Keenobserver never said that this fund would mitigate stock market plunges. If someone made such a claim, though, the actual performance in 2020 would disprove it.

The only claim Invesco makes for the fund, of course, is that "The Invesco S&P 500® High Dividend Low Volatility ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the S&P500® Low Volatility High Dividend Index (the “Underlying Index”)." Backtesting is relevant for seeing how well it did that, and according to Invesco's website, the ETF underperformed its index: 10.96% for the SPHD versus 11.31% for its index, a tracking error of 0.3% per year, which wouldn't affect anybody's long-term goals but isn't exactly great.
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Re: Why not put everything in SPHD and be done with it?

Post by burritoLover »

nisiprius wrote: Tue May 11, 2021 10:46 am
burritoLover wrote: Tue May 11, 2021 6:59 am 10 years of back-testing is utterly useless - in fact back-testing is practically useless for comparing any funds. But I do love how people here will rake someone over the coals asking about a concentrated position such as QQQ based on its outperformance the last 10 years but then use the same ten years to lambast someone asking about a dividend or value fund that has severely underperformed in the last 10 years.

If going all-in on SCHD helps the OP stay the course cause they believe in magic dividend money then that is more important than potentially being too concentrated in underperforming dividend stocks. Although I would probably balance it out with a dividend appreciation fund.
I didn't do ten years of back-testing. I looked at something specific, which was the behavior of a fund with the words "low volatility" in its name during a conveniently recent period of extreme stock-market volatility.

Backtesting isn't valid for deciding which fund will have the highest return going forward. However, it is very reasonable to investigate to test claims that a fund should be expected to behave in particular ways under particular conditions. How reasonable depends on the claim, and I don't know what was being claimed for the fund. Keenobserver never said that this fund would mitigate stock market plunges. If someone made such a claim, though, the actual performance in 2020 would disprove it.

The only claim Invesco makes for the fund, of course, is that "The Invesco S&P 500® High Dividend Low Volatility ETF (the “Fund”) seeks to track the investment results (before fees and expenses) of the S&P500® Low Volatility High Dividend Index (the “Underlying Index”)." Backtesting is relevant for seeing how well it did that, and according to Invesco's website, the ETF underperformed its index: 10.96% for the SPHD versus 11.31% for its index, a tracking error of 0.3% per year, which wouldn't affect anybody's long-term goals but isn't exactly great.
I wasn't responding to you - I was responding to those comparing the returns of VTI or the S&P 500 to a fund that has been around for less than 10 years.
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Re: Why not put everything in SPHD and be done with it?

Post by laketrout »

Let's look deeper.

From this website:
https://etfdb.com/index/sp-low-volatili ... end-index/

"The Index Provider screens the S&P 500 Index for the 75 securities with the highest dividend yields over the past 12 months and, from those securities, selects the 50 securities with the lowest realized volatility for inclusion in the index."

How does a stock get in the top 15% (75/500) of companies, as ranked by their dividend yield?
* they could be a good solid company with a nice dividend (that is the assumption we would like to make)
* they could be a failing or degrading company with a depressed share price that hasn't cut their dividend yield, (at least not yet) and its "high" dividend yield is just a function of bad price performance

Since "over the past 12 months" indicates the the index is updated each year, that means that there would also be some turnover
* companies that recover with a strengthening stock price might be sold at a profit
* companies that cut their dividend might be sold at a significant loss

It makes sense to me that this would underperform the market average in the long run. It could be that the successful companies are replaced with companies with more downside possibilities.
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Re: Why not put everything in SPHD and be done with it?

Post by Northern Flicker »

laketrout wrote: "The Index Provider screens the S&P 500 Index for the 75 securities with the highest dividend yields over the past 12 months and, from those securities, selects the 50 securities with the lowest realized volatility for inclusion in the index."
I would describe this strategy as closet active management, outsourcing the portfolio management to S&P.
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Re: Why not put everything in SPHD and be done with it?

Post by sycamore »

MishkaWorries wrote: Mon May 10, 2021 10:49 pm It seems SCHD Schwab's dividend ETF is considered the best dividend ETF now. Much better total return than SPHD, less volitility, more diverse, 0.06 ER and about the same percent dividend.
Wait another few months and there'll be a better dividend ETF :) SCHD, DGRO, VIG, NOBL, VYM...
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Re: Why not put everything in SPHD and be done with it?

Post by reln »

Keenobserver wrote: Mon May 10, 2021 1:26 pm As per title, looking for reasons why one should not just put it all in SPHD and be done with it?
PowerShares S&P 500 High Dividend Low Volatility Portfolio (ticker: SPHD).
Less diversification
More tracking error
Less certain outcome
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Re: Why not put everything in SPHD and be done with it?

Post by patrick013 »

Keenobserver wrote: Mon May 10, 2021 1:26 pm As per title, looking for reasons why one should not just put it all in SPHD and be done with it?
PowerShares S&P 500 High Dividend Low Volatility Portfolio (ticker: SPHD).
According to S&P from 1990 into 2019 (before COVID) SPHD was actually
ahead of the 500 in annualized total return by over 2%. It's another
fund where economic downturns hurt in relation to it's return compared
to the 500. In an economy with some earnings growth overperformance
is quite possible as noted above for a long term investment especially
in a Roth type account. I wouldn't count it out completely yet for a bad
year during COVID. Every fund has it's bad year. If I had it in a Roth would
I dump it ? I don't know. It does have alot of good years in it's background.

S&P has the index back to 1990 while the retail ETF only exists as of
2012.
age in bonds, buy-and-hold, 10 year business cycle
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