Despite the Fed’s plans to raise interest rates, investors are still clamoring for new ways to find income in the low rate world.
Luckily, the various exchange-traded fund (ETFs) sponsors continue to feed investors’ appetites for income with new products. This week, the new ETF-product launches gave them plenty to chew on. In the end, investors received four new ETFs that focus on dividends or interest income.
For a list of all the new ETF launches, take a look at our ETF Launch Center.
iShares MSCI USA ESG Optimized ETF
Large-Cap Growth Equities
Deutsche X-trackers USD High Yield Corporate Bond ETF
High Yield Bonds
Janus SG Global Quality Income ETF
PowerShares S&P International Developed High Dividend Low Volatility Portfolio
Foreign Large-Cap Equities
PowerShares S&P SmallCap High Dividend Low Volatility
Small-Cap Blend Equities
PowerShares Expands Its Suite
Invesco’s PowerShares was one of the first issuers to embrace smart-beta ETFs. That was back before we even called what they were doing ‘smart beta. Its long pedigree of providing alternative indexing produced one of the most successful smart-beta launches so far: PowerShares S&P 500 High Dividend Portfolio (SPHD B+).
SPHD followed a simple formula of finding the highest dividend payers in the United States that also exhibited lower volatility than the broader market. Investors got their dividends as well as market protection. Over the longer term, the strategy makes for higher risk-adjusted returns. The formula worked so well that PowerShares has started to replicate it in other segments of the market.
Launched on December 1, PowerShares S&P International Developed High Dividend Low Volatility Portfolio (IDHD n/a) and PowerShares S&P SmallCap High Dividend Low Volatility Portfolio (XSHD n/a) expanded the concept to international stocks and the smallest players in the U.S.
IDHD will focus on developed market international stocks – except for South Korea – in its search for the highest dividend payers that don’t ‘bounce around’ as much. XSHD will comb the S&P 600 for small-cap stocks based in the United States. Both use identical screening methods to find the 100 least volatile companies over the past 12 months to diminish the risks associated with high-yield stocks.
Both also only charge 0.30% or $30 per $10,000 in expenses.
Given how big of a hit SPHD was, PowerShares could have another set of winners in XSHD and IDHD.
Janus Goes Global
Mutual fund powerhouse Janus Capital has built a decent stable of smart-beta and thematic ETFs in a relatively short time. The newest entrant to the group should make dividend seekers happy.
The smart-beta Janus SG Global Quality Income ETF (SGQI n/a) and its underlying index, the SGI Global Quality Income Index, seek to find quality dividend payers from across the globe. The ‘quality’ factor looks for stocks with strong earnings growth, cash flows, low debts, etc. The idea is to move beyond just value and to find those stocks that are truly good companies. This is especially important when looking at firms that pay dividends.
The hope is that SGQI’s portfolio of stocks has the goods to keep the dividends coming, and that it won’t see any cuts or share price declines over the longer haul. Ultimately, the new Janus ETF could find its way into many investors’ portfolios as a core fund to gain global exposure to large-cap stocks.
Expenses cost just 0.45% for the ETF.
Deutsche Bank Unveils a Category Killer
It’s no secret that high yield bonds have become immensely popular as investors seek income. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG A) has nearly $18 billion in assets. For Deutsche Bank, that’s kind of a problem. The bank is actually one of the largest traders of high yield or junk bonds. It’s basically losing money to an ETF. With that in mind, the firm – through its X-trackers line of ETFs – released the Deutsche X-trackers USD High Yield Corporate Bond ETF (HYLB n/a).
Like HYG, HYLB tracks a basket of U.S. dollar-denominated junk bonds and features a high yield. The difference comes down to expenses. HYLB charges a rock bottom 0.25% versus HYG’s 0.49%. That’s basically half.
For Deutsche Bank, the hope is that it can seriously undercut on cost, attract investors to switch to its product and regain its footing as the high yield king.
iShares Gets Optimized
While most of the ETFs this week focused on income, leading sponsor iShares took a different route. The sponsor launched the iShares MSCI USA ESG Optimized ETF (ESGU n/a) to flesh out its socially responsible investing suite of products.
ESG or socially responsible investing has picked up steam as more investors have aligned their portfolios with their values. ESGU focuses its attention to the cream-of-the-crop stocks at the top of the ESG ladder. By using screens, the ETF will only select those with the best overall socially responsible scores. In essence, the fund offers a way to play a concentrated portfolio of the ESG names. Expenses are just 0.28%.
Want to learn more about how ESG investing can be used to build a better portfolio? Read Socially Responsible Investing (SRI) – Better Returns for Being “Good”.
The Bottom Line
This week, investors got a hefty dose of income solutions for their portfolios. The bulk of them focused on alternative indexing and smart beta. In the end, they could find a home in many portfolios because, even with the bump in interest rates, yields are still low.
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