Direxion Launches 2 Dividend-Focused ETFs

Direxion – a renowned player in the leveraged and inverse leveraged ETF world – has recently launched two new products focusing on the dividend space. The products Direxion Value Line Mid- and Large-Cap High Dividend ETF and Direxion Value Line Small- and Mid-Cap High Dividend ETF trade under the ticker VLML and VLSM, respectively.

Both the funds charge 58 basis points as fees. Below we have highlighted some of the details of the newly launched products (read: 3 Top Performing Dividend ETFs to Watch in 2015).

Direxion Value Line Mid- and Large-Cap High Dividend ETF (VLML)

The fund seeks to track the performance of Value Line Mid- and Large-Cap High Dividend Yield TR Index to provide exposure to mid- and large-cap companies that are expected to pay above-average dividends. The index consists of 50 mid- and large-cap securities selected using Value Line’s four determining criteria, namely, Timeliness, Performance, Safety Ranks, and the Financial Strength Rating.

Also, the Index is reviewed weekly by Value Line and a stock will be replaced if its Timeliness, Safety Ranks or the Financial Strength Rating falls significantly. The index uses an equal-dollar weighted strategy which results in a well-diversified portfolio (read: 3 Unbeatable Dividend ETF All-Stars for Your Portfolio).

Currently, the fund holds a basket of 50 stocks with HollyFrontier Corp, Domtar Corp and Tupperware Brands as the top three holdings. Out of the total assets, the fund allocates roughly 74% to large caps and 26% to mid caps. Also, the fund is well spread across various sectors with double-digit exposure to materials, financials, consumer discretionary, technology, industrials and utilities.

Direxion Value Line Small- and Mid-Cap High Dividend ETF (VLSM)

VLSM tracks the Value Line Small- and Mid-Cap High Dividend Yield TR Index to provide exposure to small and mid-cap companies that are expected to pay above-average dividends. The fund uses the same set of criteria to select stocks as VLML (read: Will the Lure of Dividends Lead Small Cap ETFs Higher?).

The fund currently holds a well-diversified portfolio of 50 stocks out of which 84.5% are mid caps, while the rest are small caps. Unlike VLML, this product is highly concentrated on the financial sector with 43.8% allocation, followed by double-digit exposure to materials and energy.

How Do the Funds Fit in a Portfolio?

The funds are a good option for investors seeking exposure to companies paying above-average dividends. The use of Value Line’s proprietary research ensures that the funds hold high-quality dividend stocks.

Moreover, dividends have accounted for more than 40% of total returns from the market over a long time horizon. Dividend paying companies are stable and mature with solid cash flows that provide greater stability and safety in a volatile environment.

ETF Competition

The dividend ETF market has quite a number of players. Vanguard Dividend Appreciation ETF (NYSE:VIG)) is the most popular fund in the space with an asset base of $24.9 billion. The fund provides exposure to stocks that have a history of increasing dividends over at least 10 consecutive years. VIG is one of the cheapest in its space, with an expense ratio of just 10 basis points.

iShares Select Dividend ETF (ARCA:DVY), Vanguard High Dividend Yield Index Fund (NYSE:VYM) and SPDR S&P Dividend ETF (NYSE:SDY) are some of the other popular funds in the space. While DVY manages an asset base of $15.3 billion, VYM and SDY have an AUM of $12.7 billion and $14 billion respectively. Also, all the three funds charge between 10 to 40 basis points.

Given this, Direxion’s new products will have to sell investors on its use of Value Line’s proprietary research to select high dividend paying stocks, more so because they are also costlier than the above products (read: Direxion Plans Two Triple-Leveraged Biotech ETFs).

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