Originally published at: How To Navigate Difficult Market Conditions Using ETF Investing
High dividend, low volatility ETFs may offer income and stability in turbulent markets. Learn how these strategies work and how to invest.
Dividend-paying ETFs with lower volatility are becoming a popular option for investors trying to manage risk in today’s markets. Here’s how they work and why they might be useful.
These ETFs can be extremely useful for any investor who is either looking to support their current income or seeking potentially less volatile strategies for building wealth over the long term. They are particularly compelling when markets are volatile.
Demand has risen over the past year for ETFs that offer defensive characteristics, including dividend and low volatility strategies. Invesco offers ETFs that combine these two factors.
Why dividends matter when markets get choppy?
Many companies choose to reward their shareholders by paying them dividends. Some may do it infrequently such as whenever they have extra cash, while others have a more established dividend policy. Those with a track record of regularly paying dividends are highly sought-after by investors due to the predictability of these payments. It can also be an indication that the company is managed sensibly and is financially healthy.
Companies that pay the highest dividends are usually from industries that are vital but not so exciting. These include those in the utilities, real estate and consumer staples sectors.
For an income investor who’s not eager to take a lot of unnecessary risk, this can be good. These companies can also be thought of as stable and defensive. They may not be as flashy as technology stocks, but they tend to be less volatile.
What are high dividend, low volatility ETFs?
It’s important to note that dividend yields are expressed as a percentage of the stock’s price, so some stocks will have a high yield simply because their stock price has fallen sharply. There are likely to be many examples of this due to the recent correction in global stock markets. The question is whether these companies will be able to continue paying those dividends. Invesco’s range of High Dividend Low Volatility UCITS ETFs take a direct approach to this “dividend trap” by excluding the most volatile stocks.
For example, the S&P 500 version selects the top 75 dividend-paying stocks from the index. It then filters and removes the most volatile to leave a final list of 50. These ETFs also include rules to keep the ETF balanced, such as limiting exposure to a single sector or stock. The result is a concentrated portfolio of the highest dividend-paying, least volatile stocks in the US.
Consider adding global diversification to potentially reduce risk
An income-seeking investor wanting greater diversification may consider investing in different regions. For example, investing some in US equities through a fund such as the Invesco S&P 500 High Dividend Low Volatility UCITS ETF and some into other parts of the world through a fund like the Invesco FTSE Emerging Markets High Dividend Low Volatility UCITS ETF.
Although an investment in emerging markets is riskier than one in a developed market, by spreading the risk globally, investors can access a wider range of growth opportunities.
Investors could spread their investment even wider. The Invesco FTSE All-World UCITS ETF doesn’t focus on high dividends or low volatility, but it is a low-cost way to gain access to the stocks of more than 4,000 companies from 50 countries in developed and emerging market economies by investing in just one ETF.
The dividend yield from this ETF is lower than those of the High Dividend Low Volatility ETFs, but investors who don’t need the income now can choose accumulating shares in the ETF. The quarterly dividends are then automatically rolled up within the fund.
You might experience the benefits from the “compounding effect” as dividends are reinvested to potentially increase the fund at the end of the quarter. This could result in a bigger pot to grow the following quarter, and so on throughout the time you hold the ETF.
Combining with other strategies like monthly investing
If you are concerned about volatility, you could consider making monthly investments, rather than large, one-off lump sums. The benefit of an investment plan is that it automatically buys more units in your chosen funds when the market is lower and fewer units when the market is high. This “pound-cost averaging” approach may help smooth returns and remove the worry of picking the “wrong time” to invest.
Conclusion
Dividend strategies can be valuable for investors looking to take income and for those wanting to build long-term wealth, while also focusing on low volatility stocks can help stabilise returns.
To explore Invesco’s range of ETFs on InvestEngine, click here: Invesco | InvestEngine
FAQs
- What is a high dividend, low volatility ETF? It’s an ETF that invests in companies with strong dividend payments and relatively stable share prices. The goal is to offer regular income while reducing the ups and downs of market movements.
- What is a dividend trap? When a stock looks attractive because it makes high dividend payments, but this is misleading. This happens when a company’s share price has fallen sharply, making the dividend payments appear unusually high.
- What is the compounding effect? When your investments earn returns and then those returns start earning more returns. Over time, this can create a snowball effect, where your money could grow faster the longer you leave it invested.
- What is pound-cost averaging? A strategy where you invest the same amount of money at regular intervals regardless of what the market is doing. This is in opposition to trying to time the market. Over time, this helps to smooth out the average cost of your investments. This can reduce the risk of buying in at the wrong time.
This content is part of a sponsored partnership with Invesco. It is for educational purposes only, does not constitute investment advice and may not be suitable for all audiences. Capital at risk. The value of your portfolio with InvestEngine can go down as well as up. You may get back less than you invest. ETF costs also apply. This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance. Tax treatment depends on personal circumstances and is subject to change. Past performance is not a reliable indicator of future returns.
Investment risks
For complete information on risks, refer to the legal documents.
Value fluctuation: The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.
Invesco FTSE All-World UCITS ETF, Invesco S&P 500 High Dividend Low Volatility UCITS ETF and Invesco FTSE Emerging Markets High Dividend Low Volatility UCITS ETF
Securities lending: The Fund may be exposed to the risk of the borrower defaulting on its obligation to return the securities at the end of the loan period. Also, of being unable to sell the collateral provided to it if the borrower defaults.
Equity: The value of equities and equity-related securities can be affected by a number of factors. These include the activities and results of the issuer and general and regional economic and market conditions. This may result in fluctuations in the value of the Fund.
Invesco FTSE Emerging Markets High Dividend Low Volatility UCITS ETF only
Emerging Markets: A large portion of this Fund is invested in less developed countries. Investors should be prepared to accept a higher degree of risk than for an ETF that invests only in developed markets.
Country Concentration Risk: The Fund is invested in a particular geographical region. This can result in greater fluctuations in the value than for a fund with a broader geographical investment mandate.
Invesco FTSE All-World UCITS ETF only
Stock Connect: The Fund may use Stock Connect to access China A Shares traded in Mainland China. This may result in additional liquidity risk and operational risks including settlement and default risks, regulatory risk and system failure risk.
Invesco FTSE All-World UCITS ETF and Invesco FTSE Emerging Markets High Dividend Low Volatility UCITS ETF only
Currency: The Fund’s performance may be adversely affected by variations in the exchange rates between the base currency of the Fund and the currencies to which the Fund is exposed.
Important information
Data as at 3 March 2025, unless otherwise stated.
If investors are unsure if this product is suitable for them, they should seek advice from a financial adviser.
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment / investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
Views and opinions are based on current market conditions and are subject to change. For more information on our funds and the relevant risks, please refer to the share class-specific Key Information Documents / Key Investor Information Documents (available in local language), the financial statements and the Prospectus, available from www.invesco.eu. A summary of investor rights is available in English from www.invescomanagementcompany.ie.
The management company may terminate marketing arrangements. UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them. For the full objectives and investment policy please consult the current prospectus.
Index disclaimers: The Invesco FTSE All-World UCITS ETF (the “Fund”) has been developed solely by Invesco. The Fund is not in any way connected to or sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). FTSE Russell is a trading name of certain of the LSE Group companies. All rights in the FTSE All-World Index (the “Index”) vest in the relevant LSE Group company which owns the Index. FTSE®, ICB®, are trademarks of the relevant LSE Group company and are used by any other LSE Group company under license.
The Index is calculated by or on behalf of FTSE International Limited or its affiliate, agent or partner. The LSE Group does not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Fund. The LSE Group makes no claim, prediction, warranty or representation either as to the results to be obtained from the Fund or the suitability of the Index for the purpose to which it is being put by Invesco.
The “”S&P 500 Low Volatility High Dividend Index NTR USD”” is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by Invesco. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Invesco. The Invesco S&P 500 High Dividend Low Volatility UCITS ETF is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the “”S&P 500 Low Volatility High Dividend Index NTR USD””.
All rights in the “FTSE Emerging High Dividend Low Volatility Index NTR USD” (the “Index”) vest in FTSE International Limited (“FTSE”). “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence. The ETF has been developed solely by Invesco. The Index is calculated by FTSE or its agent. FTSE and its licensors are not connected to and do not sponsor, advise, recommend, endorse or promote the Fund and do not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Fund. FTSE makes no claim, prediction, warranty or representation either as to the results to be obtained from the Fund or the suitability of the Index for the purpose to which it is being put by Invesco.
Issued by Invesco Investment Management Limited, Ground Floor, 2 Cumberland Place, Fenian Street, Dublin 2, Ireland. Regulated by the Central Bank in Ireland.
EMEA4456781/2025