Global X launches S&P 500 quality dividend ETF

Jul 17th, 2018 | By | Category: Equities

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Global X Funds has launched the Global X S&P 500 Quality Dividend ETF (QDIV US) on Cboe BZX, providing exposure to a large-cap US equities that have been selected for their income potential as well as robust financial metrics.

Jay Jacobs, director of research of Global X.

Jay Jacobs, director of research of Global X.

The ETF is linked to the S&P 500 Quality High Dividend Index, which takes its constitutes from S&P Dow Jones Indices‘ bellwether S&P 500 Index universe.

By combining a quality screen with dividend yield, the fund seeks to target companies that are more likely to maintain their dividend payments throughout changing economic environments.

“The steady rise of interest rates has created a dilemma for income-seeking investors, as bond yields finally become more attractive, but may be coupled with a loss of principal as rates continue to rise,” said Jay Jacobs, director of research at Global X.

“With QDIV, we are excited to offer a dividend strategy for investors that has the potential to both provide quality income and appreciate in value in a strengthening economy.”

To construct the index, the S&P DJI initially ranks each constituent of the S&P 500 by dividend yield ( by indicated annual dividend yield) and ‘quality’. Quality is derived from its return-on-equity, accruals ratio, and financial leverage ratio.

A stock is selected for inclusion if it ranks in both the top 200 by both dividend yield and quality score. A minimum of 50 constituents is required. If fewer than 50 companies are selected, companies not already selected that rank within the top 250 by both quality score and dividend yield are selected in order of highest quality score until the index reaches the minimum count requirement. As things stand, this second selection step is not required as the index has 81 constituents.

Stocks are equally weighted within the index, subject to a 25% GICS sector weight cap. The index is reconstituted and rebalanced semi-annually in June and December.

There are some notable sector differences between the quality dividend index and the broader S&P 500. The largest five sectors in the quality dividend index are consumer discretionary (21.3%), consumer staples (14.3%), information technology (12.0%), financials (10.9%) and industrials (10.8%), compared to information technology (26.0%), health care (14.1%), financials (13.8%), consumer discretionary (12.9%), and industrials (9.5%) for the S&P 500.

The quality dividend index has outperformed the S&P 500 over the past ten years, returning 13.9% per annum compared to 10.2% per annum for the bellwether index. This has come at the cost of higher volatility however, as the quality dividend index showed an annualized standard deviation of 15.3% compared to 14.7% for the S&P 500.

Commenting on the launch, Vinit Srivastava, managing director, product management at S&P DJI, said, “For Q2 2018 alone, S&P 500 companies issued a record $111.6 billion in dividends, and 216 of its components increased their cash payments by 13.5% on average. As dividends reach record levels, a need for equity income can be combined with a selection of the higher-quality companies issuing those dividends, which the S&P 500 Quality High Dividend Index can provide. We’re pleased to license the index to Global X for its newest income ETF.”

The fund is the twelfth in Global X’s $3bn suite of income ETFs which includes ‘SuperDividend’, MLP & energy and preferred stock ETFs.

The largest ETF in the suite is the Global X SuperDividend ETF (SDIV US). SDIV tracks the Solactive Global SuperDividend Index, a reference for 100 of the highest dividend yielding equity securities in the world. It has $960m in AUM and charges an expense ratio of 0.58%.

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