First Trust overhauls international high income ETF

Sep 3rd, 2018 | By | Category: Alternatives / Multi-Asset

First Trust Advisors has revamped one of its ETFs with a change of underlying strategy and reference index.

First Trust makes changes to international high income ETF

The fund will now track an index providing exposure to international stocks from firms with a strong history of dividend payments.

The ETF formerly known as the First Trust International Multi-Asset Diversified Income Index Fund and traded under the ticker symbol YDIV US has been rebranded the First Trust S&P International Dividend Aristocrats ETF (FID US).

Listed on Nasdaq Exchange, the ETF will now track the S&P International Dividend Aristocrats Index which includes stocks from developed markets outside the US that have maintained or increased their level of dividends for at least ten years.

This marks a change in direction for the fund which previously tracked the Nasdaq International Multi-Asset Diversified Income Index.

The original index targeted multiple asset classes outside the US with the aim of producing a consistent high yield. Asset classes included equities, real estate investment trusts, preferred securities, infrastructure securities, and fixed income.

The new index focuses exclusively on international equities. Its methodology aims to achieve a balance between high dividend yield and dividend sustainability and growth. It incorporates criteria on dividend payout ratio and maximum trailing dividend yield, to exclude companies whose future dividend payout may be considered potentially less sustainable.

In order to achieve a relatively high dividend yield, index constituents are weighted by indicated annual dividend yield. At each rebalancing, the weight for each index constituent is capped at 3%, and the weight of each country and Global Industry Classification Standard (GICS) sector is capped at 25%.

The resulting index has a dividend yield of 4.5%, notably higher than the 3.2% of the S&P 700 Index, which represents the global ex-US market cap-weighted equity market.

“In our opinion, dividends are often a sign of strong corporate health, and dividend increases may signal growing confidence from management,” said Ryan Issakainen, Senior Vice President, ETF Strategist at First Trust. “While many dividend ETFs focus on domestic stocks, we believe strong dividend policies are also important for international stocks. This ETF seeks to provide exposure to international stocks that may be well-positioned for dividend growth.”

“Since its 2005 inception, the S&P Dividend Aristocrats index family has been one of the leading families of indices in the areas of dividend growth and providing exposure to dividend payers in many markets,” added Joe Kairen, Senior Director, S&P Dow Jones Indices. “We are delighted to extend the S&P Dividend Aristocrats index-based concept to the international, global ex-US markets to measure the companies abroad that have consistently increased or maintained their dividends over a period of ten years.”

FID has approximately $15 million in assets under management and maintains its expense ratio of 0.79%.

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