Kenneth Lamont: The prevailing low-rate environment has seen income-starved European investors turn increasingly to dividend-orientated equity ETFs to help meet their needs.
Unlike traditional cap-weighted equity ETFs these ‘strategic beta’ funds track a benchmark designed only to select stocks with a history of paying or regularly increasing dividends. Such screens have long been used by active managers, but can now be offered in a passive fund wrapper at a fraction of the cost.
Exactly how stocks are screened and weighted varies from fund to fund, so when selecting between them it is important to understand the differences in exposure.
For example if we look at European equities space, currently the most popular ‘strategic beta’ dividend offering; the iShares Euro Dividend ETF (IDVY), screens for 30 stocks based on dividend growth rates over a five-year period.
The SPDR S&P Euro Dividend Aristocrats ETF (EUDV) on the other hand, screens for 40 stocks over a 10 year period.
Another interesting fund is the Amundi MSCI EMU High Dividend ETF (CD8), which also selects securities on additional ‘quality’ factors such as return on equity, earnings variability, debt to equity and price performance.
Unlike both the iShares and SPDR funds, which weight stocks based on their dividend performance, the Amundi offering weights holdings using a market cap methodology.