Shares Magazine – May 23, 2019

EXCHANGE-TRADED FUNDS

30 | SHARES | 23 May 2019

composed of 50 stocks with

leading dividend yields from

UK-listed companies.

The problem with this

approach is that high yields can

ŽŌĞŶďĞĂƐŝŐŶĂůƚŚĂƚĂĚŝǀŝĚĞŶĚ

cut is on the way. Notably

Vodafone (VOD) is among

the top holdings within the

product and the telecoms group

recently cut its dividend by 40%.

For this reason there is an

argument that dividend

growth or at least sustainability

according to certain criteria –

ĨĂĐƚŽƌƐƐƵĐŚĂƐǀŽůĂƟůŝƚLJ͕ƐŚĂƌĞ

ƉƌŝĐĞŵŽŵĞŶƚƵŵĂŶĚǀĂůƵĂƟŽŶ͘

hŶƐƵƌƉƌŝƐŝŶŐůLJ͕ŐŝǀĞŶ

dividends are a key reason

many people buy stocks and

ƐŚĂƌĞƐ͕ƚŚĞƐĞĨĂĐƚŽƌƐŚĂǀĞĂůƐŽ

encompassed yield.

While these products can be

more expensive than ETFs that

simply match the performance

of a mainstream index like the

&d^ϭϬϬ͕ƚŚĞLJĂƌĞƚLJƉŝĐĂůůLJ

cheaper than equity income

funds. But do they deliver?

The accompanying table

ƐŚŽǁƐĂƐĞĐƟŽŶŽĨŝŶĐŽŵĞd&Ɛ

ĂŶĚŝŶĨŽƌŵĂƟŽŶŽŶĐŚĂƌŐĞƐĂŶĚ

dividend yield.

iShares UK Dividend (IUKD)

takes a fairly simple approach

ŽĨƐĞůĞĐƟŶŐƐƚŽĐŬƐĨŽƌŝƚƐ

index based on dividend yield.

^ƉĞĐŝĮĐĂůůLJŝƚƚƌĂĐŬƐĂŶŝŶĚĞdž

We look at dividend-focused passive funds and how their selection criteria works

Using low-cost ETFs

for investment income

I

nvestors looking to get a

regular income from

ƚŚĞŝƌƉŽƌƞŽůŝŽŚĂǀĞƚŚĞ

ŽƉƟŽŶŽĨŝŶǀĞƐƟŶŐŝŶĂƌĂŶŐĞŽĨ

low-cost exchange-traded funds

;d&ƐͿƐƉĞĐŝĮĐĂůůLJĚĞƐŝŐŶĞĚƚŽ

track certain types of dividend-

paying assets.

,ŽǁĞǀĞƌ͕ŶŽƚĂůůĚŝǀŝĚĞŶĚͲ

focused ETFs are created equal.

/ŶƚŚŝƐĂƌƟĐůĞǁĞǁŝůůůŽŽŬĂƚƚŚĞ

pros and cons of the relevant

products and discuss the

mechanics around ETFs and

dividends.

TIGHTENING THE RULES

An increasing number of ETFs

track a basket of companies

ǁŚŝĐŚŚĂǀĞďĞĞŶĮůƚĞƌĞĚ

WHILE THESE

PRODUCTS CAN BE

MORE EXPENSIVE

THAN ETFS THAT

SIMPLY MATCH THE

PERFORMANCE OF A

MAINSTREAM INDEX

LIKE THE FTSE 100,

THEY ARE TYPICALLY

CHEAPER THAN

EQUITY INCOME

FUNDS. BUT DO THEY

DELIVER?

W

?

OUR

TOP PICK IS

SPDR S&P

UK DIVIDEND

ARISTOCRATS

ETF