Schwab Asset Management has launched a new equity ETF providing exposure to non-US stocks with quality fundamentals and a record of consistently paying dividends.
David Botset, Senior Vice President of Product Strategy for Schwab Asset Management.
The Schwab International Dividend Equity ETF (SCHY US) has listed on NYSE Arca and comes to market with $10 million in assets under management.
It has an expense ratio of 0.14%, positioning it as one of the cheapest ETFs in its category.
David Botset, Senior Vice President of Product Strategy for Schwab Asset Management, said: “We are excited to bring our newest ETF to market for investors who are eager for additional choice in investment strategies that seek income.
“We are committed to providing investors with products that can help them build well-diversified portfolios at great value, and we’re pleased to expand our line-up with this new international dividend ETF.”
The fund is linked to the Dow Jones International Dividend 100 Index which selects its constituents from a universe of large and mid-cap stocks from both developed and emerging markets, excluding those domiciled in the US. For China, only stocks of companies that trade on developed market exchanges are eligible.
The methodology consists of a series of screening rounds that narrows the eligible universe down to the final constituent list. First, the process identifies firms with a minimum of ten consecutive years of dividend payments and an indicated dividend yield that is greater than the median for the eligible universe.
These securities are then ranked according to a composite quality score derived from an equally weighted combination of four fundamental metrics: cash flow to total debt, return on equity, indicated dividend yield, and five-year dividend growth rate. The top 400 stocks pass through to the next round.
These 400 securities are then ranked by the inverse of their three-year share price volatility, and the top 200 stocks are selected. These 200 securities are then ranked again by their composite quality scores, and the top 100 stocks are selected to comprise the index.
Constituents are weighted by market capitalization subject to a cap of 4% on any single stock and a cap of 15% on the cumulative weight of stocks from any single GICS sector. Additionally, the total weight of emerging market stocks will also be limited to 15%.
The index is reviewed on a quarterly basis with buffer rules helping to limit unnecessary turnover.
As of 30 April, the index was yielding 2.31% with significant exposure to stocks from the UK (16.9%), Japan (11.5%), Australia (11.3%), Germany (9.4%), and Switzerland (9.2%). The largest sector allocations were evenly spread across financials (14.9%), health care (14.8%), consumer staples (14.7%), communication services (14.7%), and industrials (12.2%).
The fund complements Schwab’s US-focused quality dividend ETF, the Schwab US Dividend Equity ETF (SCHD US), which houses $21.3 billion in assets and comes with an expense ratio of 0.06%. This fund tracks the Dow Jones US Dividend 100 Index which pursues a similar strategy as described above, selecting high-yielding stocks of companies with robust fundamental strength and a record of consistently paying dividends.