Friday 1 February 2013

Portfolio Buy: db x-trackers Stoxx Global Select Dividend 100 UCITS ETF (LSE:XGSD)

"It's smoke and mirrors, Jim -
but not as we know it"
Now, this is a strange one - and to be honest, I'm not 100% sure about it but I thought it looked worth a try in my search for global diversification.

Not only is it a mouthful, but it's an Exchange Traded Fund that follows an index tracking the global 100 highest dividend shares, which no-one else quoted on the LSE seems to offer. But it does this without holding any of the shares...

This db x-trackers Stoxx Global Select Dividend 100 UCITS ETF comes out of the Deutsche Bank UK ETF stable, most of which operate with indirect replication (i.e. without directly holding the securities that make up a particular index). By contrast, all the other ETFs I hold use direct replication rather than these complicated derivatives. Whether there is ultimately an increased risk at times of market turmoil remains to be seen. As I don't plan to hold too much of it, this shouldn't be too much of a risk.

What is nice is the diversification the ETF offers by targeting the highest-dividend paying companies in America, Europe and Asia/Pacific. It is 'well diversified across well over 10 countries and sectors around the globe', to quote Morningstar.

While I like the diversification, this comes at the cost of a Total Expense Ratio of 0.50% and relatively low distribution yield. I'm still trying to get my head around this: the 2012 dividend was EUR 0.95, while the ETF is quoted in UK£ on the London Stock Exchange, so calculating the current yield is a bit tricky. Bloomberg give it as around 4%: I make it nearly half a percentage point higher in GB£. This is lower than I would normally look at - similar to my cash return but, after all, I am trying to diversify.

This ETF is based on the STOXX Global Select Dividend 100 Index which  provides exposure to Global equities:
  • the number of index constituents is fixed and includes the 100 highest dividend paying stocks in America, Europe and Asia/Pacific relative to their home market
  • stocks are screened by historical non-negative dividend-per-share rates and dividend to earnings-per-share ratios
  • the constituents are weighted by their indicated annual net dividend yield (and not market capitalisation).
  • the component stocks are capped at 15% of the index’s value and reviewed annually in March
  • in November 2012 (according to Morningstar), the heaviest country exposure was the US (25% of the index’s value), followed by the UK (16%) and Singapore (10%)
  • the index is heavily biased to financials which represent 39% of its value, followed by utilities (18%) and telecommunications (14%).

The only other ETF which offers this range of geographical spread for dividend stocks is the iShares STOXX Global Select Dividend 100 ETF, which appears to be only available on the Frankfurt stock exchange.

The top three component stocks of the STOXX Global Select Dividend 100 Index are:
  • Suntec Real Estate (2.3%) -  a composite real estate investment trust (REIT) in Singapore owning real estate that is primarily used for retail and/or office purposes
  • RSA Insurance Group (2.1%) - the UK stalwart
  • Annaly Capital Management (1.8%) - the largest mortgage REIT listed on the New York Stock Exchange

The price trend for this ETF has been strongly positive in 2013, after being fairly steady in 2012 - a reflection of the recent uptick in global confidence and possibly a precursor of the much-talked-about 'rotation' from bonds to equities. Of course, with price appreciation, the yield falls - until the next hike in dividends.

Anyway, I'm thinking that this might be a long-term 'anchor' to help stabilise the equity half of my high-yield portfolio. We shall see.

[Purchase price: £18.82]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. I looked at the some of the dividend funds db-trackers offers when choosing a Euro dividend etf but was put off by the indirect stock holding through derivatives. There's probably nothing to worry about, but all the publicity seems to be against these types of etf in favour of direct stock holders. In the end I chose SPDR Euro Divdend Aristocrats 40 as it was direct holding with a low(ish) 0.3% annual charge.