SPDR Russell 1000 Yield Focus ETF (ONEY): A Value Play Focused On Yield

I’ve talked about this being a year where dividend and yield investing comes back into focus, and if I’m right, you might want to tilt your equity exposure where there is more focus on that as opposed to growth companies with high capital appreciation. That’s where the SPDR® Russell 1000 Yield Focus ETF (ONEY) comes into play. ONEY stands as a pivotal instrument for investors aiming at the Large Cap Value sector. This passive exchange-traded fund, under the management of State Street Global Advisors since its inception on December 2, 2015, strives to replicate the performance of the Russell 1000 Yield Focused Factor Index. The index it tracks is indicative of the performance of large-cap U.S. equity securities that exhibit a synergy of essential factors, including high valuation, top quality, and smaller size, while particularly focusing on securities with strong dividend yields.

The fund has a competitive expense ratio of 0.20% and a significant asset under management (AUM) amounting to over $750 million. This sizable AUM indicates the fund’s popularity among investors and its ability to effectively diversify company-specific risk across its vast holdings.

A Closer Look at ONEY’s Holdings

ONEY’s portfolio is comprised of a diverse array of holdings, predominantly focusing on large-cap U.S. equities with robust quality and higher dividend yields. As of now, it holds around 300 securities, effectively diversifying company-specific risk.

Among the fund’s holdings are companies such as:

• Pioneer Natural Resources (PXD): PXD is an independent oil and gas exploration and production company.
• Devon Energy Corp. (DVN): DVN is an independent energy company engaged in the exploration, development, and production of oil and natural gas.
• Diamonback Energy Inc. (FANG): FANG is an independent oil and natural gas company. It’s one of ONEY’s top holdings, adding to the fund’s solid exposure to the energy sector.

No holding makes up more than 1.54% of the portfolio, making this a very diversified large-cap fund in a world where many of the market proxies have heavy weighting to a select number of technology stocks.

Sector Composition and Weightings

ONEY’s holdings are spread across a variety of sectors. The fund has a significant allocation in the financials sector, accounting for around 18% of the portfolio. The fund’s large exposure to these sectors is a strategic move designed to capitalize on the potential high yields and robust growth these sectors can offer.

How ONEY Compares to Other ETFs

Let’s take a look at how ONEY stacks up against the iShares Russell 1000 Value ETF (IWD) and the Vanguard Value ETF (VTV). In terms of performance, ONEY has managed to outperform both, so the yield focus is clearly helping within the value categorization the fund is considered to be in.

The Pros and Cons of Investing in ONEY

Like any investment, investing in ONEY comes with its share of pros and cons.

Pros

1. Diversification: ONEY provides investors with exposure to a broad range of sectors and companies, effectively mitigating company-specific risk.

2. High Yield: The fund targets companies with high yield characteristics, providing potential for higher returns.

3. Low Expense Ratio: With an expense ratio of 0.20%, ONEY is a cost-effective investment option.

Cons

1. Market Risk: ONEY is subject to market risk, and its value may fluctuate due to changes in the overall market.

2. Interest Rate Risk: The fund’s performance may be impacted by changes in interest rates, especially considering its significant exposure to the financial sector.

Conclusion: Investing in ONEY – A Wise Decision?

Investing in ONEY is preferably in my view to other large-cap proxies here given the focus on high-quality, high-yield U.S. equities. Its low expense ratio, significant AUM, and solid performance make it an attractive investment option. I’d favor this over the S&P 500 on the lowered Technology exposure alone, and do think this can be a year where Value beats Growth, with dividend yield focused companies at the helm.

Markets aren’t as efficient as conventional wisdom would have you believe. Gaps often appear between market signals and investor reactions that help give an indication of whether we are in a “risk-on” or “risk-off” environment.

The Lead-Lag Report can give you an edge in reading the market so you can make asset allocation decisions based on award winning research. I’ll give you the signals–it’s up to you to decide whether to go on offense (i.e., add exposure to risky assets such as stocks when risk is “on”) or play defense (i.e., lean toward more conservative assets such as bonds/cash when risk is “off”).