VanEck launches four equity strategy ETFs on ASX

Aug 31st, 2020 | By | Category: Equities

VanEck Australia has launched four new equity ETFs on the Australian Securities Exchange providing exposure to durable dividends, wide economic moats, healthcare leaders, and video gaming & Esports investment strategies.

VanEck head of Asia Pacific Arian Neiron

Arian Neiron, VanEck’s Managing Director and Head of Asia Pacific.

Arian Neiron, VanEck’s Managing Director and Head of Asia Pacific, said, “We are launching these new products to meet the strong demand in Australia for low-cost rules-based investment products that can help investors achieve their long-term wealth objectives.

“Our products are predicated on well-considered investment theses. Our new ETFs offer investors access to opportunities that they could not otherwise access, via intelligently designed and forward-looking index strategies that tap into structural changes rather than investing in themes or fads which may evaporate.”

Durable dividends

The VanEck Vectors Morningstar Australian Moat Income ETF (DVDY AU) targets Australian dividend-paying companies with the financial strength to sustain their payments to shareholders.

The ETF’s underlying reference is the Morningstar Australia Dividend Yield Focus Index which screens a universe of ASX-listed dividend-paying securities (excluding REITs) according to Morningstar‘s proprietary “Economic Moat” and “Distance to Default” measures.

The term ‘economic moat’ was coined by Warren Buffett and refers to the ability of a firm to maintain significant market share and protect its long-term profits. This is achieved through competitive advantages that include brand loyalty, cost advantages, intangible assets, economies of scale, or regulatory protection, for example. Only firms that Morningstar analysts have deemed to possess an economic moat, whether narrow or wide, will be eligible for selection.

The Distance to Default metric measures a 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. Eligible companies must have a Distance to Default score in the top half of their sector.

Once the universe has undergone both screens, the methodology selects the 25 highest yielding stocks from the remaining pool and weights them by trailing twelve-month dividend yield. Any individual stock is capped at 10%, while the aggregate weight of all stocks above 5% is limited to 50%.

The ETF comes with an expense ratio of 0.35%.

Wide Moat

The VanEck Vectors Morningstar World Ex Australia Wide Moat ETF (GOAT AU) tracks the Morningstar Developed Markets ex-Australia Wide Moat Focus Index which selects its constituents from a universe of companies listed in developed markets outside of Australia.

The methodology also uses Morningstar analysts’ insights to select between 50 and 100 attractively priced firms that are considered to possess wide moats – competitive advantages that will deliver excess returns for at least 20 years. Constituents are equally weighted within the index.

The ETF comes with an expense ratio of 0.55%.

VanEck also offers a Wide Moat strategy focused on US equities. The VanEck Vectors Morningstar Wide Moat ETF (MOAT US) houses $170m and comes with an expense ratio of 0.49%.

Healthcare Leaders

The VanEck Vectors Global Healthcare Leaders ETF (HLTH AU) is linked to the MarketGrader Developed Markets (ex-Australia) Health Care Index which selects its constituents from a universe of developed ex-Australia companies operating within the health care sector.

The methodology deploys MarketGrader’s scoring system which assigns each company a rating between 0 and 100 based on 24 fundamental indicators linked to value, growth, and quality factors.

The selection pool is narrowed to the 100 firms with the highest MarketGrader scores, ensuring that at least 60 are domiciled in the US. From this reduced pool, the index selects the 50 largest companies based on total market capitalization. Constituents are also equally weighted in the index.

The ETF comes with an expense ratio of 0.45%.

“HLTH offers investors access to a high conviction and targeted portfolio of global healthcare companies selected for their growth and value attributes,” said Neiron. “In Australia, it will be unique, as all other ETFs in this segment are weighted by size and do not consider any fundamentals.”

Video Gaming & Esports

The VanEck Vectors Video Gaming and Esports ETF (ESPO AU) tracks the MVIS Global Video Gaming and eSports Index which was created by MV Index Solutions, VanEck’s indexing division.

The index consists of companies from both developed and emerging markets that derive at least 50% of their revenue from the video gaming and Esports industries. Eligible companies include those that develop video games and related software/hardware, provide streaming services, or host Esports events. The index is weighted by free-float market capitalization with a single-issuer cap of 8%.

The ETF comes with an expense ratio of 0.55%.

Neiron added, “ESPO, as another example, is tapping into the dramatic rise of video gaming and Esports, a structural phenomenon which Covid-19 is accentuating and accelerating. In Australia it will also be unique, the only ETF to focus on investing in the largest pure-play video gaming and Esport companies globally, allowing investors to tap into the megatrend of technology but diversify away from the FAANGS.”

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