ProShares, the largest US provider of alternative exchange traded funds, recently launched a so called smart-beta fund that targets European companies with a proven track record of growing dividends.
While the global economic turmoil, including China’s slowdown, has hit European companies hard, when it comes to paying dividends they don’t disappoint investors – as of August 31, 2015, the dividend yield of the pan-European STOXX Europe 600 Index stood at 3.4 percent compared to S&P 500 benchmark’s little over 2 percent and 2.2 percent for the MSCI USA Index. That said there’s no denying the significant weakening of the euro this year has helped European companies absorb some of the shocks.
The newly launched ProShares MSCI Europe Dividend Growers ETF (EUDV) tracks the MSCI Europe Dividend Masters Index, which screens the universe of the parent index – the MSCI Europe. MSCI Dividend Masters Index selects stocks based on their payout history over the past 10 years and companies that have managed to grow dividends year-over-year are included in the index.
The index contains a minimum of 25 stocks at any given time that are equally weighted, which gives a smart-beta twist to the underlying index. Exposure to individual sectors is capped at 30 percent and to individual countries at 50 percent. The underlying index consisted of 51 stocks as of 9/30/2015, indicating a well diversified portfolio.
Insofar as sector allocation is concerned, industrials (18.91 percent), consumer staples (18.33 percent) and health care (17.62 percent) occupy the top three slots. Country-wise UK gets the maximum exposure at 48.15 percent, followed by France (11.89 percent) and Switzerland (9.34 percent).
While EUDV is well diversified, there’s a risk of the underlying index becoming concentrated since the index allows including stocks with a shorter dividend-growth history if fewer than 25 companies fail to meet the 10-year dividend growth inclusion criterion.
In fact, companies with shorter dividend growth history can also be included if caps on individual sectors and countries are breached. That suggests EUDV is better suited as an income generator and may not qualify for a core holding.
The underlying index is rebalanced each February, May, August and November while the annual reconstitution takes place during the November rebalance.
The new ETF has an annual expense ratio of 0.55 percent.
Disclosure: No holdings
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