Invesco rolls out smart beta ETFs in Canada

Mar 8th, 2017 | By | Category: Equities

Exchange-traded fund provider Invesco Powershares has launched two new smart beta ETFs on the NEO Exchange in Canada – the Powershares S&P 500 High Dividend Low Volatility Index ETF (UHD) and the Powershares S&P Global ex. Canada High Dividend Low Volatility ETF (GHD). The funds aim to give Canadian investors a source of income as well as stable growth potential by selecting high dividend, low volatility equities.

Invesco rolls out smart beta ETFs in Canada

The ETFs seek to capture the high dividend factor premium with an additional volatility screen.

Both indices use a filter to select high dividend yielding stocks and then a secondary filter for volatility. “For many investors, receiving a monthly dividend payment is their primary investment goal,” said Christopher Doll, Vice President, Product and Business Strategy, PowerShares Canada. “Screening by dividend payment alone can expose investors to unwanted risk. The addition of a volatility screen helps mitigate the risk that a company’s dividend yield is due to a falling share value.”

UHD provides exposure to US large cap equities with high-dive and low-vol characteristics by tracking the performance of the S&P 500 Low Volatility High Dividend Index. The index’s first filter selects the 75 highest dividend yielding stocks in the bellwether S&P 500 Index. A limit of ten stocks per GICS sector is applied to promote diversification in the index.

The second filter then ranks these 75 stocks by trailing 12-month price return volatility, and the 50 stocks with the lowest volatility are selected for the index’s final composition. Constituents are weighted by dividend yield to boost the income profile of the index.

UHD is available in Canadian dollar (CAD), US dollar and Canadian dollar-hedged versions, while GHD is available in CAD and CAD-hedged versions.

It has a management expense ratio (MER) of 0.35%.

Due to its initial screen in favour of high yielding stocks, the ETF is weighted towards sectors with traditionally high dividend payouts such as utilities (22%) and real estate (18%), with consumer staples the third largest sector at 11%.

Over the last 10 years, the index has returned 11.9% annually compared to 7.8% annual return for the S&P 500 over the same period.

GHD tracks the S&P Global 1200 Ex-Canada Low Volatility High Dividend Index. The selection universe for the index are the members of the S&P Global 1200 Ex-Canada Index, which is a composite of global large-cap indices excluding Canada that captures approximately 70% of the world’s market capitalisation.

The highest 300 dividend yielding stocks from the parent index are selected and then ranked by trailing 12-month volatility. The 100 least volatile stocks are selected for inclusion in the index and weighted equally. Over the last 10 years, the S&P Global 1200 Ex-Canada Low Volatility High Dividend Index has recorded an annual return of 7.5% compared to the 5.4% returned annually by the S&P Global 1200 Ex-Canada.

It also has a high proportion of utilities exposure (24%), while financials and real estate make up 18% and 17% respectively.

GHD has an MER of 0.55%.

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