Morningstar - Q4 2020 - 70

Strategies

Risk Tamer
Legg Mason Low Volatility High Dividend ETF provides
effective downside protection.
BEST IDEAS: PASSIVE

Alex Bryan

Legg Mason Low Volatility High Dividend ETF LVHD

This article is adapted from the ETF's Morningstar Global Fund Report dated
Aug. 27, 2020.

Stats 09/30/20

Legg Mason Low Volatility High Dividend ETF LVHD delivers a high dividend
yield, while offering effective downside protection. Its dual focus on
income and risk should deliver strong risk-adjusted performance over the
long run, supporting a Morningstar Analyst Rating of Silver.

Morningstar Analyst Rating
„

Morningstar Category
Large Value

Expense Ratio
0.27%

Total Assets
$694 Million

3-Yr Annlzd Return
2.67%

3-Yr % Rank in Cat
49

People
Average

Parent
Average

Morningstar Pillars 09/30/20
Process
Above Avg

This index fund targets U.S. stocks of all sizes with high and sustainable
dividend yields, as well as low price and earnings volatility. This helps the fund
mitigate the risks that come with chasing yield. The highest-yielding firms
often have weak or deteriorating fundamentals. These stocks also tend
to pay out a large portion of their earnings as dividends, leaving a small buffer
to cushion those payments should their earnings fall.

Growth of 10K 09/30/2020

$14K
Morningstar US Large Value

This strategy has been effective at reducing risk. Over its life, the fund has
tended to hold up considerably better than the Russell 1000 Value Index
during market downturns, and it has exhibited lower volatility and sensitivity
to market fluctuations. While the fund has also tended to lag during
market rallies, it has tended to save more on the downside than it gives up,
which has allowed it to deliver better risk-adjusted performance. K
Alex Bryan is director of passive strategies for North America at Morningstar.

10.93

10
Legg Mason Low Volatility High Div
10/2017

10/2018

Investment
10/01/2020

Category Index
08/31/2020

Category Avg.
09/30/2020

Mstar
Risk

Mstar
Rating

3-Yr

Average

Low

QQQ

5-Yr

-

-

-

10-Yr

-

-

-
QQQ

Overall Rating

Top 5 Sectors 09/30/2020

Sectors

■ Fund % 

f Utilities

❙ Category Average %

17.52

5.51

17.19

9.07

s Consumer Defensive

17.18

3.01

u Real Estate

11.35 13.14

p Industrials

11.79

0%

Morningstar Q4 2020

Morningstar Ratings 09/30/2020

Centroid
Mstar
Ownership Zone Period Return

Deep Core Core Core High
Value Value
Grwth Grwth

8

10/2019

Equity Style Map 09/30/2020

d Healthcare

70

12

10.82

Micro Small Mid Large Giant

Favoring dividend payers with low price and earnings volatility addresses
the former risk. These adjustments point the fund toward businesses with more
stable cash flows and less market risk. There is a benefit to considering
both price and earnings volatility. Prices are forward-looking. Price volatility
indicates the market's level of uncertainty about what a stock is worth
and is predictive of future volatility. The lower that volatility is, the less risk
a stock tends to have. Focusing on low earnings volatility helps filter
out firms with deteriorating fundamentals or erratic cash flows that could
threaten the sustainability of the dividend payments. While the fund's
risk adjustments are significant, dividend yield remains its top priority and it
delivers on this front. Its pursuit of yield pulls it into large-cap value
territory. This portfolio has tended to have a similar value orientation to the
Russell 1000 Value Index. However, its holdings have tended to be more
profitable, reflecting the impact of its risk screens.

10

15.72
20
Morningstar - Q4 2020

Table of Contents for the Digital Edition of Morningstar - Q4 2020
