Inflation has been on the front burner of everyone's discussion topic list. I've written about funds that look to invest in companies that, over certain parts of the economic cycle, should be resilient in the face of inflation. I've also written about funds that play 3D chess to try and benefit shareholders.
Issuer Amplify ETFs and index provider EQM Indexes have teamed up to bring to launch a fund that looks to help investors take advantage of the immediate effects of inflation by investing in companies that are able to not only benefit from the effects of inflation but also pass on those good results to shareholders.
NDIV
The Amplify Natural Resource Dividend Income ETF (NDIV) was launched on August 24, 2022, and has a 59 basis point expense ratio, meaning a shareholder with $1,000 invested over a calendar year would pay $5.90 in fees over that period. The fund tracks the EQM Natural Resources Dividend Income Index.
While other funds take the tack of relative outperformance, NDIV is structured to take advantage of what the issuer believes is an impending commodities supercycle and a current income opportunity. The current income pitch is not a hard one to make seeing as both the current yield and the 30-day SEC yield are above 10%.
The fund is currently split roughly 53% energy names, 32% materials, and 14% chemicals with 31% exposure to the US and the rest providing exposure to traditional materials centers like Canada, Australia, Brazil, Peru, and South Africa.
Despite the global nature of the fund, index provider EQM has stuck to providing these exposures using US-listed American Depository Receipts (ADRs). This has the benefit of not only having a portfolio where all the holdings trade during the same market hours as the fund but also helps to keep costs and the complexity of the fund down.
I got curious and created a simple 50/50 portfolio of the Energy Select Sector SPDR Fund (XLE) and the Materials Select Sector SPDR Fund (XLB) to compare returns from the fund launch to Friday, October 14, 2022. The results are in the graph below and as you can see, over the past seven or so weeks, NDIV tracks that blended portfolio.
Where the similarities disappear are when it comes to comparing the yields of these funds. Based on the October 14, 2022, closing price and the most recent dividend, the current distribution yield of XLE is 3.81% and XLB is 2.48%, as compared to NDIV's 10.49%. Additionally, the standardized 30-day SEC yield for these funds is 3.36% (XLE), 2.27% (XLB), and 10.17% (NDIV).
Source: FactSet, All You Can ETF
My Take
As this fund is new, it doesn't have a lot of assets under management. That being said, ETF liquidity is not about the number of shares or volume of shares traded of the fund, but rather, the liquidity of the securities held by the fund. With regards to NDIV holdings, close to 99% of these names are companies that have at least $10 billion in market cap so don't let the small size of NDIV throw you off.
While my proxy portfolio runs over a short time period, the tracking is interesting, especially given the international exposure in NDIV. It should be said that foreign ADRs trading on local markets have tended to trade in sympathy with those local markets, so this observation is more a of test to see if this still holds true, and it does seem to.
The bottom line for me is that if you feel that Amplify's commodity supercycle call is right and you are looking for a non-derivative-based, high-yielding product then NDIV just might be worth a closer look.
(The Energy Select Sector SPDR Fund is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells XLE? Learn more now.)
