WisdomTree’s latest ETF offers smart beta access to UK dividend income

Oct 9th, 2015 | By | Category: Equities

WisdomTree Europe, a provider of exchange-traded funds, has launched an equity income ETF dedicated to the UK market at a competitive 0.29% total expense ratio.

WisdomTree's latest ETF offers low cost access to UK dividend income

WisdomTree’s new ETF provides investors access to high dividend-paying UK companies.

The WisdomTree UK Equity Income UCITS ETF (WUKD LN) offers investors exposure to a diversified basket of the UK’s highest dividend-yielding stocks and follows a smart beta portfolio construction process that weights constituents by cash dividends. Such strategies aim to outperform traditional market capitalisation-weighted indices on a risk-adjusted basis.

According to WisdomTree, fundamentals such as dividends offer an objective measure of a company’s health, value and profitability and have historically provided a majority of the stock market’s real return over time.

Hector McNeil, Co-CEO of WisdomTree Europe, commented: “Our strategy uses the same methodology that underpins many WisdomTree ETFs and has helped the company grow to become the fifth largest ETF issuer in the US market and the seventh globally. Based on client demand for WisdomTree’s Equity Income methodology, this is the first ETF which WisdomTree Europe is launching dedicated to the UK market. WisdomTree’s methodology combines experience and track record, with a high yielding broad index – something which investors will find useful in today’s low interest rate environment”.

The fund tracks WisdomTree’s internally developed index which begins by selecting the top 33% of UK-listed companies ranked by dividend yield. The index then weights constituents by their total cash dividend relative to the sum of all dividends in the selected universe. This process focuses on the larger dividend-paying stocks and avoids the risk of significant exposure to small- or mid-cap stocks that can occur when a weighting methodology is based purely on dividend yield.

“The WisdomTree UK Equity Income UCITS ETF provides for greater diversification than is typical in other UK income strategies,” said Viktor Nossek, Director of Research at WisdomTree Europe. “It has over 100 constituents and features a large cap bias with over 83% of the index comprised of stocks with market capitalisation greater than £10bn and close to 15% in mid-cap stocks.”

A 3% single stock cap and a 25% sector cap are employed to ensure that the basket of stocks is not overly concentrated in single large dividend-paying stocks or specific sectors. “The capping of individual sector exposures at 25% creates a more balanced portfolio construction compared to other unconstrained strategies, providing risk control at different parts of the investment cycle. In addition, a historic dividend yield of 5.9% compares favourably to competing indices,” added Nossek.

The fund will join only a handful of UK-focused dividend ETFs which includes the iShares UK Dividend UCITS ETF (IUKD LN) and the SPDR S&P UK Dividend Aristocrats UCITS ETF (UKDV LN). The WisdomTree fund stands out for its attractive total expense ratio (0.29% compared to 0.40% for the iShares fund and 0.30% for the SPDR fund), less concentrated number of holdings (over 100), and a lower sector weighting cap (designed to avoid outsized positions in sectors such as financials).

The ETF has been listed on the London Stock Exchange and, as of 2 September 2015, yielded 5.9% and held 103 stocks.

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