Investors Chronicle recently (June 2016) published an interesting review of high yield dividend ETFs (Exchange Traded Funds) offered on the London Stock Exchange (there are now, apparently over 30!). I say 'interesting' because there were a few I hadn't heard of.
One of the problems for DIY Income Investors interested in income-producing ETFs is that there is no easy source for the ranking of yield of different ETFs - you have to just hunt around.
Most regular readers will be aware of the advantages - and disadvantages of using ETFs to generate portfolio income:
- 'Pro' - it is a relatively cheap and easy way to hold a basket 'foreign' (for me, non-UK) dividend shares, so providing diversification whilst needing little administrative maintenance
- 'Con' - the performance of this basket of shares is much less easy to predict that individual shares, and the up-side (and down-side, to be fair) is much more limited
Each ETF provider has a slightly different methodology to make up their basket of dividend shares, including geographical location and currency. Shares are also chosen by criteria aimed at identifying:
- Stocks with a high current yield
- Future dividend payers
- Past dividend payers
ETFs focusing on shorter timeframes tend to come with higher returns and higher volatility, while those with long time frames reduce risk, but also income.
London's Equity Income ETF Providers
- SPDR - Generally SPDR selects companies with over 10 or 20 years of dividend increases, depending on the region, weighted by dividend yield. As a result these are some of the most concentrated portfolios, but they also have a range of caps and checks to ensure the risk is kept low.
- Wisdomtree looks backwards only over one year. It differs from other providers by weighting index stocks by total cash dividends paid in order to avoid overweighting stocks with falling share prices. Stocks are ranked by dividend yield, with the top 33% from each market making the next stage in selection.
- Vanguard offers only one dividend ETF in London - its Global Dividend ETF; they screen for stocks with a higher than average dividend yield, and then rank them by forecast dividend yield until the cumulative market capitalisation reaches 50% of the total universe of stocks.
- db X-trackers' equity income ETFs have some of the most concentrated portfolios including the highest-yielding stocks from their chosen regions
- iShares uses a range of dividend strategies in its London-listed ETFs; for example, it applies quality screens and reviews 12-month past performance to omit stocks with potentially deteriorating fundamentals, which could cause them to cut or reduce dividends
- Lyxor - Lyxor's Quality Income ETFs ranks stocks based on a quality and balance sheet risk score, as well as looking at historic dividend yield
LSE Equity income ETFs and yields
(Yields as reported in article - I'll try to track down the others in due course)
- BMO MSCI UK Income Leaders (ZILK) - yield:
- WisdomTree UK Equity Income UCITS ETF (WUKD) - yield:
- iShares UK Dividend UCITS ETF (IUKD) - 50 stocks with leading dividends in the past year - yield: 5.6%
- SPDR S&P UK Dividend Aristocrats UCITS ETF (UKDV) - just 30 constituents - yield: 4.5%
- Source FTSE Rafi UK Equity Income (DVUK) - yield:
- db X-trackers EURO Stoxx Select Dividend 30 UCITS ETF (XD3E) - 30 holdings - yield: 3.3%
- BMO MSCI Europe ex-UK Income Leaders (ZILE) - yield:
- WisdomTree Europe Equity Income UCITS ETF (EEI) - yield: 4.6%
- Lyxor UCITS ETF PEA Euro Stoxx 50 Dividends (EDIV) - yield:
- iShares EURO Dividend ETF (IDVY) - the 30 highest-yielding eurozone companies - yield: 4.0%
- SPDR S&P Euro Dividend Aristocrats UCITS ETF (EUDI) - yield: 3.0%
- UBS Factor MSCI EMU Total Shareholder Yield UCITS ETF (UD05) - yield:
- Lyxor SG European Quality Income NTR UCITS ETF (SGQE) - yield: 4.6%
- db X-trackers MSCI North America High Dividend Yield Index UCITS ETF (XDND) - yield:
- Powershares S&P 500 High Dividend Low Volatility UCITS ETF (HDLG)- yield: 2.8%
- WisdomTree US Equity Income UCITS ETF (DHS) - yield: 2.7%
- iShares MSCI USA Dividend IQ UCITS ETF (QDIV) - yield: 1.2%
- SPDR S&P US Dividend Aristocrats UCITS ETF (USDV) - 100 constituents - yield: 1.9%
- UBS Factor MSCI USA Total Shareholder UCITS ETF (UD01) - yield: 2.5%
- EUROPE Source FTSE Rafi US Equity Income (DVUS) - yield:
- db X-trackers Stoxx Global Select Dividend 100 UCITS ETF (XGSD) - 100 holdings - yield: 3.2%
- Lyxor ETF SG Global Quality Income (SGQL) - yield: 4.3%
- Vanguard FTSE All-World High Dividend Yield UCITS ETF (VHYD) - over 1000 companies - yield: 3.2%
- SPDR S&P Global Dividend Aristocrats UCITS ETF (GLDV) - yield: 2.5%
- UBS Global Select Dividend UCITS ETF (UC75) - yield: 4.3%
So, as you can see, there is a fair amount of choice on the London market alone. I tend to select only those yielding over 4%, although - as the article points out - that might involve greater risks.
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.
Interesting - I am looking to use the ETFs to give me a bit of diversification and went with the Vanguard option for global mix - its not that high but means I am now in the "forget about it" range - and I managed to pick it up relatively cheaply :)
All the best,
Exactly! I use them for the family SIPPs, so there is less admin required.Delete
The description of the vanguard etf's index is pretty confusing. Although they rank stocks by forecast yield and take from the top until 50% of market cap is covered, they then weight the stocks by market cap in the final index. This means:ReplyDelete
1) the yield is lower than those who weight by yield
2) the correlation to regular market cap weighted indices is very high
3) it is cheaper as they only have to rebalance when stocks move in and out
I never quite understand how dividends are treated on ETFs that don't pay any, so an ETF on FTSE 100 that does not pay any dividend, what does it do with dividend received. I am guessing they just re-invest like accumulation funds, but do they give tax receipt etc. to holders !?ReplyDelete