October 7, 2014

As is often the case, industry analysts and market strategists both agree the value of the S&P 500 index will increase in the near term, but disagree on the magnitude of the increase. According to estimates compiled by FactSet (Source: FactSet Targets & Ratings, 10/1/2014), industry analysts in aggregate predict the S&P 500 will see a 10.5% increase in price in the near term, while market strategists predict a 4.3% increase in the near term. It is interesting to note that over the past year, both the industry analysts and market strategists have underestimated the actual value of the S&P 500. Analysts often predict growth which should theoretically be baked into price, yet they are often incorrect.

The same inconsistencies and imperfections in information apply to dividend estimates and projections. Looking back at dividend growth estimates from Q3 2013, analysts predicted S&P 500 dividend growth of 9.1% for the forward 12 months, with Information Technology and Financials leading growth at the sector level at 17.4% and 16.8%, respectively (FactSet Dividend Quarterly, 9/13/2013). In reality, based on Q3 2014 data, the dividends of the S&P 500 grew 11.5% in the trailing-twelve month period. Contrary to analyst projections, this marked the 14th consecutive quarter in which S&P 500 dividends grew at double-digit rates. In addition, the Financials sector ended up leading all groups in year-over-year dividend growth (19.2%) for the first time in eight quarters, outperforming the Information Technology sector (FactSet Dividend Quarterly, 9/15/2014).


September 13, 2013, through September 15, 2014. Past performance does not guarantee future results. Source: FactSet Research Systems, Reality Shares Research

These inaccuracies in analyst projections contradict the notion of market efficiency. As we have learned, markets are not perfect, information is not perfect, and investors cannot rely on analyst estimates alone to make truly informed dividend growth projections. Going forward, analysts are predicting an end to the outstanding dividend growth in the S&P 500. Single-digit dividend growth rates are expected over the next twelve months (8.3%) and in 2015 (7.4%), and nine of the ten sectors in the S&P 500 are projected to grow DPS between 2.3% and 8.3% in 2015 (FactSet Dividend Quarterly, 9/15/2014). However, even if the majority of analysts believe dividend growth will slow, the markets do not always price in the true growth potential, and we believe there is additional upside potential for S&P 500 dividend growth in the coming months.


S&P 500: A broad stock market index based on the market capitalization of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 was developed and continues to be maintained by Standard & Poor’s Financial Services LLC, and is considered to be a bellwether for the US economy.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. To obtain a prospectus containing this and other important information, please call 1-855-595-0240 or click here to view or download a prospectus online. Read the prospectus carefully before you invest.

Investing involves risks, including possible loss of principal. Past performance does not guarantee future results. There is no assurance the stated objective(s) will be met. Not FDIC insured. See the section “Principal Risks” in the prospectus for important risk disclosures.

Investments in options, swaps, forward contracts and futures contracts are subject to a number of risks, including correlation risk, interest rate risk, market risk, leverage risk, and liquidity risk. Each of these risks could cause the Fund to vary from its stated objective, could cause the Fund to lose money and may have a negative impact on the value of your investment. Please refer to the Fund Risks for further explanation of individual risks.

This material contains the opinions of the author, which are subject to change, and should not to be considered or interpreted as a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product and it should not be relied on as such.

Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.

You cannot invest directly in an index.

Reality Shares Advisors, LLC is the Investment Advisor. ALPS Distributors, Inc. is the Distributor for the Fund. Reality Shares Advisors, LLC and ALPS Distributors, Inc. are not affiliated.

The Fund is newly organized and the Adviser has not previously managed an ETF registered under the 1940 Act.

Shares of the Fund are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Market Price is based on the midpoint of the bid/ask spread at 4:15pm ET on business days and does not represent the returns an investor would receive if shares were traded at other times.