A New International Dividend ETF Comes to Town
There is no shortage of dividend ETFs currently on the market, but the statistics indicate there may room for more. Investors poured $6.1 billion in new assets into U.S. dividend-themed ETFs during the first quarter.
At the end of the quarter, $68.5 billion in assets resided in dividend ETFs, according to S&P Capital IQ.
Numbers like those indicate investors love dividend ETFs and, in some cases, will quickly warm to new dividend funds. Income investors now have a few more dividend ETFs with global focuses to pick from, including the FlexShares International Quality Dividend Index Fund (NYSE: IQDF), which debuted Tuesday.
The FlexShares International Quality Dividend Index Fund is part of a suite of three new dividend funds introduced by Northern Trust's (NASDAQ:NTRS) on Tuesday. FlexShares has previously had success with other dividend offerings including the FlexShares Quality Dividend Index Fund (NYSE:QDF).
QDF, a U.S. focused equivalent of the new IQDF, debuted in mid-December and now has more than $53.4 million in assets under management.
With a net expense ratio of 0.47 percent per year, IQDF tracks the Northern Trust International Large Cap Index. The new ETF's aims to match the index's beta will improving upon its dividend yield, according to FlexShares.
Home to 216 holdings, IQDF allocates nearly 28 percent of its weight to the financial services sector. Energy, industrials and consumer staples also receive double-digit allocation. Familiar dividend sectors such as health care, telecommunications and utilities are not excessively weighted in the new ETF as that trio combines for about 20.5 percent of the fund's weight.
IQDF is predominantly a large-cap fund though it does a decent job of spreading its weight across various market capitalizations. Large-caps account for almost 54.2 percent while mid-caps check in at 33.2 percent. Small and micro-caps combine for the remainder of IQDF's weight.
At the country level, IQDF is dominated by the U.K. (16.5 percent) and Japan (11.7 percent). Australia, France and Canada round out the ETF's top-five country weights. There is some emerging markets exposure with China and Brazil combing for about 7.5 percent of the new ETF's weight. Nearly 27.7 percent of IQDF's country weight is defined as "others" though data is not yet available on what those other countries.
Top holdings include Commonwealth Bank of Australia, which is also the top holding in the iShares Dow Jones International Select Dividend Index Fund (NYSE:IDV), a potential rival for IQDF. Another possible rival for IQDF is the PowerShares International Dividend Achiever Portfolio (NYSE:PID).
Other familiar names in the new ETF's lineup include Total (NYSE:TOT), GlaxoSmithKline (NYSE:GSK) and Royal Dutch Shell (NYSE: RDS-A).
Important to investors is the fact that IQDF employs a screening process that focuses on "three main factors including management efficiency and dividend policy; profitability; and cash flow to sustain dividend payments," said the issuer. That means the ETF does not use length of dividend increase as its primary screening methodology, a strategy currently employed by some of the largest dividend ETFs on the market.
FlexShares is no stranger to unique screening methodologies for its dividend ETFs. The FlexShares Quality Dividend Defensive Index Fund (NYSE:QDEF), which debuted in December, uses its own proprietary scoring model and an optimization process. That ETF has returned more than 11 percent since its introduction.
After just one day, it is too early to pass judgment on IQDF, particularly because yield information is not yet available. However, it would be wise not to underestimate IQDF's potential for success. The ETF has come to market in favorable environment for dividend investors and it cannot be ignored that FlexShares only needed 10 ETFs, none of which are yet two years old to amass nearly $4.7 billion in assets under management.
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