Deutsche expands quality dividend offering with global ETF

Apr 10th, 2018 | By | Category: Equities

Deutsche Asset Management has launched the Xtrackers Morningstar Global Quality Dividend UCITS ETF (XMGD GR) on Deutsche Börse’s Xetra and Frankfurt exchanges. The fund is the second ETF from Deutsche to track a Morningstar index that provides exposure to dividend-paying stocks from companies screened for robust financial health.

global quality ETFs dividends

The fund seeks to exclude stocks with poor metrics of financial health which may be unable to maintain their dividend payments.

The underlying index for the fund is the Morningstar Developed Markets Dividend Yield Focus Index which is composed of 200 large- and mid-cap equities from developed market countries.

The index’s screening methodology comprises three ratings. The first assesses each company’s ability to sustain dividend payouts through a “Moat Rating”. Companies with ‘economic moats’ have structural or competitive advantages that allow them to maintain profit margins and, therefore, continue to pay high dividends. The rating splits companies into one of three groups: those without a moat, those with a narrow moat, or those with a wide moat. Companies without a moat are excluded from the index.

The second metric is an “Uncertainty Rating”, which denotes the uncertainty of the analysts’ intrinsic value estimate of the company’s shares. The rating considers the level of operating and financial leverage, sales sensitivity to the health of the economy, product concentration, pricing power and other company-specific factors. To be included in the index, companies require a relatively low Uncertainty Rating.

The third rating, “Distance to Default”, measures the firm’s solvency levels through a combination of market and company-specific analysis, in which company liabilities are viewed as a call option on the value of assets. In this case, a default is expected to occur if liabilities (the strike price) outweigh the firm’s assets. Companies with Distance to Default scores in the top 50% of their respective sectors qualify for inclusion in the index.

Companies that make it through this initial screening are ranked by dividend yield, with the top 200 companies included in the index. A dividend dollar-weighting system is utilized, in which the constituents are weighted according to the total dividends paid by the company to investors.

The US is the largest country exposure with 38.4% of the total weight, followed by the UK (11.6%), Canada (10.7%), Australia (9.9%) and Switzerland (9.2%). The sector exposures are dominated by financials and consumer staples with 24.2% and 22.2% of the total weight respectively, followed by healthcare (13.3%), energy (13.1%) and telecommunications (7.7%).

The ETF has a total expense ratio (TER) of 0.45%. It has also been listed on London Stock Exchange with the ticker XMGD LN.

The TER is a little pricier than the Xtrackers Morningstar US Quality Dividend UCITS ETF (XMDU) which launched last week on Deutsche Börse and London Stock Exchange. XMDU applies a similar methodology as the latest Deutsche ETF to track 75 US-listed dividend payers with strong quality credentials. Its TER is 0.35%.

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