A sudden downturn in the market can deal a serious blow to your portfolio. Seeing your assets diminish can be devastating.
But it’s worth noting that panic is likely to make the situation worse. Staying invested and diversified should help you weather market storms in the long run.
Arming your portfolio with the right dividend ETFs can provide a steady stream of income as well as capital appreciation and downside protection.
But with so many dividend ETFs out there, how do you choose one that remains resilient even during market downturns?
ETFs that have historically done this are known to screen for high-quality, reputable companies that are financially sound and pay or even increase their dividends every year. Many companies invest heavily in defensive industries, which typically remain stable during market declines. Some people also engage in alternative income-generating strategies, such as selling options.
But here, too, the list seems daunting. So to help you out, we’ve narrowed it down to six-month dividend ETFs that might help protect your savings even in a market downturn.
Let’s take a closer look.
The J.P. Morgan Equity Premium Income ETF (JEPI) invests in lower-volatility large-cap stocks, which can provide defense in down markets. As an actively managed fund, it also uses its proprietary research to find undervalued and overvalued stocks with better risk/adjusted return characteristics. It also uses a second method to generate revenue by selling options. This strategy helped JEPI achieve a high yield of more than 8%.
Its top holdings include companies in the financial, healthcare and information technology sectors. The latter has been benefiting from the recent boom in artificial intelligence (AI).
In addition, JEPI received a Morningstar Silver Award. The fund has returned more than 6% over five years. Its net worth is $41.49 billion.
The Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) invests in some of the highest-yielding companies in the S&P 500 Index. But it filters out companies with high volatility. This strategy can provide high income and downside protection. It also has significant investments in defensive sectors such as utilities.
Additionally, SPHD’s yield is as high as about 4%. The five-year return rate is over 31%. Its expense ratio is 0.30%.
The Amplify CWP Enhanced Dividend Income ETF (DIVO) also takes a dual approach to earning income. It invests in high-quality dividend stocks of financially sound companies and offers covered call options on those stocks. Additionally, it seeks low volatility to protect investors. DIVO pays a high yield of 5%, with a five-year return of over 42%.
The fund invests primarily in the financials, information technology and consumer discretionary industries. The stocks held by this ETF are also known for their historical dividend and earnings growth.
The J.P. Morgan Nasdaq Equity Premium Income ETF (JEPQ) invests in lower-volatility large-cap stocks and sells options to generate income. It focuses on stocks in the tech-heavy Nasdaq 100 index. It is also an actively managed fund and its managers have over 50 years of combined experience.
JEPQ’s yield is over 10%, with a five-year return of over 18%, which is impressive. Its major holdings include companies in Wall Street’s so-called “Big Seven.” It focuses primarily on the information technology, communications services and consumer discretionary sectors. Its expense ratio is 0.35%.
The NEOS Nasdaq-100 High Income ETF (QQQI) invests in high-quality stocks and uses a data-driven call options strategy. This actively managed fund offers an exceptional yield of over 13%, making it particularly attractive to income seekers. And the five-year return rate has remained above 7%. In addition, QQQI holds approximately US$7.42 billion in net assets and has an expense ratio of 0.68%.
Its major holdings also include members of The Magnificent Seven.
But it’s worth noting that funds heavily invested in an industry can pose risks if that industry comes under pressure. Additionally, the fund aims to capture some of the upside when the Nasdaq 100 rises. Therefore, this could be an ETF to complement an already diversified portfolio.
The iShares Preferred and Income Securities ETF (PFF) focuses on preferred stocks, which have characteristics of bonds and may provide downside protection. It invests almost exclusively in the financial, industrial and utility sectors. The fund yields more than 6%. It has a net worth of over $14 billion. Its expense ratio is 0.45%.
It’s worth noting, however, that PFF’s five-year return was negative. But in a down market, its strategy is likely to remain stable. Still, it’s always important to do your due diligence before investing.
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