Zacks To Launch Yield Payout, MLP ETFs

IndexUniverse.com

(An earlier version of this story said the funds were launched as scheduled today. IndexUniverse was informed after publication of the story that the rollouts were delayed until June 20. We regret the inaccuracy.)

Zacks Funds, a Chicago-based financial research firm and mutual fund manager, on June 20 plans to roll out through Exchange Traded Concepts’ ETF platform a pair of ETFs—one focused on dividend-paying stocks and the other serving up exposure to master limited partnerships.

At heart, both the Zacks Sustainable Dividend ETF (NasdaqGM:ZDIV) and the Zacks MLP ETF (NasdaqGM:ZMLP) are designed to serve up yield potential. ZDIV, costing 0.70 percent a year, invests in 100 U.S. dividend-paying stocks selected from a universe of 1,500 large-cap securities. ZMLP invests in 25 to 50 U.S.-listed MLPs and costs 0.75 percent.

Zacks is the latest to join the hunt-for-yield juggernaut, going head-to-head with some well-established competition from fund providers such as iShares, ALPS, Invesco PowerShares and Global X Funds, to name a few.

The company is hoping to tap into investor appetite for strategies that promise income at a time when navigating highly volatile global equities markets has provided anything but safety, and when interest rates remain near all-time lows.

Both funds track proprietary benchmarks that apply a quantitative rules-based multifactor methodology to pick and weight only the securities that show the highest yield potential from their respective market segments.

The two funds will be listed on Nasdaq, the No. 2 U.S. stock exchange that has a growing presence in the world of ETF primary listings.

Going The Dividend Route

In the dividend-ETF space, a pair of iShares funds currently holds the bulk of investor dollars.

The iShares Dow Jones Select Dividend ETF (DVY - News) is the largest, with more than $8.52 billion in assets, while the iShares High Dividend Equity ETF (HDV - News) boasts of $1.5 billion in assets.

DVY is also among the funds that has served up some of the highest dividend yields in the space—currently in the neighborhood of 3.5 percent—much like the $195 million PowerShares High Yield Equity Dividend Achievers Portfolio (PEY - News) and the $435 million WisdomTree Equity Income ETF (DHS - News).

But it’s been HDV that has delivered one of the highest 12-month total returns, even if its dividend yield has been among the lowest, putting into focus just how crucial a fund’s methodology is to its performance, as IndexUniverse analyst Carolyn Hill pointed out in a recent blog .

ZDIV—and ZMLP, for that matter—takes into account several factors to choose its securities and determine their weighting, including liquidity, yields and relative value. Both funds strive to invest in the highest-yielding names.

ZDIV’s underlying index is split into two equal subindexes, each comprising 50 stocks—the underlying securities are chosen and weighted based on liquidity and yield. The rebalancing takes place monthly, but in an alternating fashion:Each subindex is rebalanced only every other month so that each group of securities is held for 61 days, according to information the company provided in the prospectus .

The Hunt For Yield Through MLPs

MLPs are partnerships that generate most of their income from the natural resources sector, but they make money from fees rather than from the underlying commodities themselves, which protects them from volatility spikes in commodities prices.

Their special tax treatment—MLPs are not taxed as corporations—allows them to pay hefty dividends, an attractive feature for an investor looking for income.

ZMLP will go head to head against funds like the $3.1 billion ALPS Alerian MLP ETF (AMLP - News), which until a few months ago was the only MLP-focused strategy in an ETF wrapper, and the $3.4 billion JP Morgan Alerian MLP ETN (AMJ - News).

Newcomer to the space Global X MLP ETF (MLPA - News), launched in April, will also give ZMLP a run for its money because MLPA is by far the cheapest MLP-focused portfolio in the market today. The $5.5 million fund costs 0.45 percent, while AMLP and AMJ each cost 0.85 percent.

ZMLP is the second MLP-focused ETF to be launched through Exchange Traded Concepts’ private label “ETF In A Box” solution.

Before it, Yorkville partnered with ET Concepts to launch the Yorkville High Income MLP ETF (YMLP - News) in March. YMLP costs 0.82 percent and has gathered $30.7 million in assets since inception.

 

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