Commerz Funds Solutions, a division of Frankfurt-based Commerzbank, has launched the ComStage Alpha Dividende Plus UCITS ETF (Xetra: F750), an actively managed exchange-traded fund primarily investing in European and US equities with high dividend yields.
Actively managed ETFs continue to attract strong demand from investors, as evidenced by a recent report from ETF consultancy ETFGI which showed that global assets dedicated to the space reached a record high of $32.8bn as of the end of June 2016.
The fund uses a quantitative model to pick stocks from firms included in customary stock market indices, such as the DAX, STOXX Europe 600 or S&P 500, evaluating potential holdings across a number of criteria. These include sufficient daily trading volume, high momentum, low price-to-earnings ratios (value factor) and high profit growth (quality factor). The equities selected on this basis are then further narrowed down by applying low volatility and high dividend screens.
By screening for a quality factor, investors may receive exposure to stocks with more sustainable dividend policies. Research released from State Street Global Advisors in March supports the notion that sustainable dividend investing may provide higher risk-adjusted returns when compared to broad market exposures in the US.
The report showed that US companies with a long track record of consistently raising their dividends (dividend growers) have been found to provide a superior degree of downside protection when compared to broad market exposure. It found that the SPDR S&P Dividend ETF (NYSE Arca: SDY), a portfolio of stocks from the S&P Composite 1500 Index that have boosted their dividends for a minimum of 20 straight years, has historically suffered smaller drawdowns compared to the S&P 500 during market downturns.
By introducing other factor tilts, such as low volatility and momentum, the fund may have smoother performance compared to funds with single factor exposure.
The new ETF trades in euros and has a total expense ratio (TER) of 0.68%.
European investors who want exposure to high yielding US or European equities that apply factor screening through a number of passive ETFs may consider the WisdomTree US Quality Dividend Growth UCITS ETF (LSE: DGRA) and the WisdomTree Eurozone Quality Dividend Growth UCITS ETF (LSE: EGRA) which invest in high yielding equities that have been screened for quality and growth characteristics. The TERs are 0.33% are 0.29% respectively.
Similarly, the Source FTSE RAFI US Equity Income Physical UCITS ETF (LSE: DVUS) and Source FTSE RAFI Europe Income Physical UCITS ETF (Xetra: DVEU) initially screen stocks for financial health, selects remaining constituents according to dividend yield then applies a weighting scheme based on a combination of dividend yield and economic size. The funds’ TERs are 0.35% each.
The iShares MSCI USA Dividend IQ UCITS ETF (LSE: QDIV), and SPDR S&P US Dividend Aristocrats UCITS ETF (LSE: UDVD) present further opportunities for investors seeking high dividend US equity exposure. Each fund has a TER of 0.35%.
Actively managed ETFs continue to attract strong demand from investors, as evidenced by a recent report from ETF consultancy ETFGI which showed that global assets dedicated to the space reached a record high of $32.8bn as of the end of June 2016. This success was reached despite reports which highlight a clear preference amongst investors for passive over active investment management, suggesting that the transparency and liquidity benefits of the ETF structure played a significant role in reaching the milestone.