Inside Market Vectors' 4 New 'Quality' ETFs

Eric Dutram

A flurry of new ETFs hit the market last week, with a variety of issuers launching fresh funds. The biggest single push, however, came from Van Eck’s Market Vectors brand, as they put out four new funds into the market.

These four products all look to focus on international markets, giving investors new ways to target both developed and emerging market stocks. Additionally, it should be noted that two of the four will have a dividend focus, giving new options for income investors.

The real focus of this group though, is on ‘quality’ stocks. Each of the four funds will invest in a broad benchmark of securities, but will apply a rigorous screen in order to only get the best companies in each fund (see Invest in Quality Stocks with These ETFs).

For the dividend products, this means that the fund will look for securities that have demonstrated dividend yields that are higher than average, and have payouts that are both sustainable and persistent. This approach should find the safer high yield stocks, potentially creating a lower risk dividend portfolio.

Meanwhile, for the ‘regular’ quality ETFs, a focus will be on the stocks that score the highest on three key factors; ROE, stable year-over-year earnings growth, and low financial leverage. This technique should also narrow the list down to safer stocks, and it could reduce volatility as well.

For investors interested by this approach, we have highlighted some of the key details regarding these new funds below:

MSCI Emerging Markets Quality ETF: QEM

This product tracks the MSCI Emerging Markets Quality Index, charging investors 50 basis points a year in fees. The fund holds about 200 stocks in its basket, and no single stock makes up more than 7% of assets.

Tencent Holdings, Taiwan Semiconductor, and China Mobile take the top spots, and are reflective of the Asian focus of the fund, as China, South Africa (the one outlier), Taiwan, India, and South Korea take the top five country spots. In terms of sectors, tech dominates at nearly 28% of assets, though it is followed by double digit weights to staples, telecoms, and energy.

MSCI Emerging Markets Quality ETF: QDEM

This dividend-focused fund follows the MSCI Emerging Markets High Dividend Yield Index, holding about 175 stocks in its basket. The fund charges investors 50 basis points a year in fees for this exposure, while the underlying index has a dividend yield of over 4.2% (read 3 Best Dividend ETFs of 2013).

Assets are pretty well spread out in this fund, as the top three companies all take up roughly 5% of the total, though China dominates from a nation perspective, accounting for 31% of the total. For sectors, financials (30%) take the top spot, followed by energy (26%), and telecom (15.8%) to round out the top three.

MSCI International Quality Dividend ETF: QDXU

Another dividend focused product, QDXU follows the MSCI ACWI ex USA High Dividend Yield Index and it holds just over 300 stocks in its portfolio. The product charges investors 45 basis points a year in fees, and its index has a dividend yield of 4.4%.

Top holdings include HSBC, Vodafone and Novartis, while the UK, Canada and Germany take the top three spots from a national look. Financials (28%), dominate the sector profile, while energy and telecoms both make up more than 12% as well.

MSCI International Quality ETF: QXUS

This ETF tracks the MSCI ACWI ex USA Quality Index and charges investors 45 basis points a year in fees for the exposure. The product holds over 375 securities, so this looks to have the most securities out of any of these new products from Van Eck (also see The Key to International ETF Investing).

No single company makes up more than 5% of assets, while Nestle, Roche, and Samsung currently take the top three spots. Three European nations—the UK, Switzerland, and the Netherlands—take the top three spots in this product, though they are followed by China and South Korea in the top five. For sectors, consumer staples, consumer discretionary, and health care take the top three, and each account for at least 13% of assets.

ETF Competition

There are a variety of other emerging market and developed market funds out there, so competition could be stiff for this Van Eck group. Furthermore, there is already a small group of ‘quality’ focused funds on the market, and while many are tilted towards the U.S., there are some international funds in the group.

In particular, the FlexShares International Quality Dividend Index Fund (IQDF), the FlexShares International Quality Dividend Defensive Index Fund (IQDE), and the PowerShares S&P International Developed High Quality Portfolio (IDHQ), and the FlexShares International Quality Dividend Dynamic Index Fund (IQDY) look to be direct competitors, just to name a few (see FlexShares Debuts 3 Dividend ETFs).

The group hasn’t attracted a whole lot of interest from investors yet though, so a dominant market leader hasn’t really been established in this space. Still, it will be tough to compete and Van Eck will have to show some degree of outperformance in order to establish itself in what is becoming a very tough, but increasingly in-focus, way to invest in emerging and developed market securities.

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Read the analyst report on QDEM

Read the analyst report on QEM

Read the analyst report on QDXU

Read the analyst report on QXUS

Read the analyst report on IQDF

Read the analyst report on PQDE

Read the analyst report on IDHQ

Read the analyst report on IQDY


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