Deutsche launches two new quality-focused high-dividend ETFs

Apr 6th, 2018 | By | Category: Equities

Deutsche Asset Management, part of the newly listed DWS Group (formerly the asset management and wealth division of Deutsche Bank), has unveiled two new Xtrackers ETFs offering exposure to high-dividend-paying quality stocks. The funds, which target US and global equity markets, have been listed on Deutsche Börse and the London Stock Exchange.

Deutsche launches two new quality-focused high-dividend ETFs

Deutsche (pat of newly listed DWS) has launched two new quality-focused high-dividend ETFs on Deutsche Börse and London Stock Exchange.

The first ETF is the Xtrackers Morningstar US Quality Dividend UCITS ETF (XMDU), which invests in 75 US corporations that meet pre-defined quality criteria based on their key financial figures, and that have paid out particularly high dividends in the past 12 months. The ETF has a total expense ratio (TER) of 0.35%.

It tracks the Morningstar US Dividend Yield Focus UCITS Index, which draws its constituents from a universe representing 97% of the US stock market. Morningstar employs financial health screens to identify companies with strong quality characteristics to include in the index.

The 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, a narrow moat, or 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 75 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 second ETF deployed by Deutsche AM is the Xtrackers MSCI World High Dividend Yield UCITS ETF (XDWY), which offers investors sustainable global dividend exposures in large and medium-sized companies. The fund comes with a TER of 0.29%.

The ETF tracks the MSCI World High Dividend Yield Index, which screens the broader MSCI World Index (comprised of 23 developed market countries) for high-quality companies offering higher-than-average dividend yields that are both sustainable and consistent.

The index is constructed using a dividend screening process, which favours securities with a track record of consistent dividend payments and with the ability to sustain dividend payouts into the future. Securities are also screened based on certain “quality” factors such as return on equity, earnings variability, debt to equity, and on recent 12-month price performance. Companies with potentially deteriorating fundamentals are identified as being less likely to maintain dividend payouts and are excluded from the index.

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