Shares Magazine – May 23, 2019

EXCHANGE-TRADED FUNDS

23 May 2019 | SHARES | 31

is more important than your
ƐƚĂƌƟŶŐLJŝĞůĚ͘
SPDR S&P UK Dividend
Aristocrats (UKDV) product
tracks an index of stocks created
by Standard & Poor’s (S&P). It
includes the 40 highest-yielding
h<ĮƌŵƐǁŚŝĐŚŚĂǀĞĞŝƚŚĞƌ
increased or maintained their
dividend payment for at least
ƐĞǀĞŶĐŽŶƐĞĐƵƟǀĞLJĞĂƌƐ͘
To be eligible companies also
have to meet market cap and
liquidity criteria.
dŚĞƉŽƌƞŽůŝŽŝƐƌĞďĂůĂŶĐĞĚŽŶ
a quarterly basis and shares are
removed from the index on the
ĮƌƐƚďƵƐŝŶĞƐƐĚĂLJŽĨƚŚĞĨŽůůŽǁŝŶŐ

month if a dividend is cancelled

or suspended.

INDEX PROBLEMS

ŶĞƌƌŽƌďLJ^ΘWƐĂǁĐŽŶƐƚƌƵĐƟŽŶ

group Carillion stay in its index

ƵŶƟůŝƚǁĞŶƚďƵƐƚŝŶ:ĂŶuary

2018 despite the company having

ƐĂŝĚŝŶ:ƵůLJϮϬϭϳŝƚǁŽƵůĚĂdžĞŝƚƐ

dividend.

Retailer Marks & Spencer

(MKS) is one of the largest

holdings in the ETF. It announced

a dividend cut in February

2019 but should leave the index

ĂƚƚŚĞŶĞdžƚƋƵĂƌƚĞƌůLJƌĞƐŚƵŋĞ

ŝŶ:ƵŶĞ͘

Notwithstanding the Carillion

ĮĂƐĐŽ͕ǁĞďĞůŝĞǀĞƚŚĞ^WZ^ΘW

h<ŝǀŝĚĞŶĚƌŝƐƚŽĐƌĂƚƐƉƌŽĚƵĐƚ

ŝƐƚŚĞŵŽƌĞĂƩƌĂĐƟǀĞŽƉƟŽŶĨŽƌ

a long-term investor because of

ƚŚĞƟŐŚƚĞƌĞůŝŐŝďŝůŝƚLJĐƌŝƚĞƌŝĂĨŽƌ

companies to be in the index.

OTHER WAYS TO

FILTER THE MARKET

tŚŝůĞƚŚĞŝǀŝĚĞŶĚƌŝƐƚŽĐƌĂƚƐ

ETF uses backward-looking

ŵĞĂƐƵƌĞƐƚŽŝĚĞŶƟĨLJŝƚƐďĂƐŬĞƚ

ŽĨƐƚŽĐŬƐƚŚĞƌĞĂƌĞĂůƚĞƌŶĂƟǀĞƐ

which try to use forward-

looking measures to try to judge

the likelihood of a company

ĐŽŶƟŶƵŝŶŐƚŽƉĂLJĂŚŝŐŚĚŝǀŝĚĞŶĚ͘

One example is BMO MSCI

UK Income Leaders (ZILK).

This tracks companies which have

higher dividend yields

and also rank highly based on

index provider MSCI’s quality

scores which measure things

like the level and consistency

of returns and the state of the

balance sheet.

ǁŽƌĚŽĨĐĂƵƟŽŶĂƐƚŚŝƐ

ETF only has £3m in assets. A

ƌŝƐŬƚŽĐŽŶƐŝĚĞƌ͕ƉĂƌƟĐƵůĂƌůLJ

when looking at smaller niche

ƉƌŽĚƵĐƚƐ͕ŝƐƚŚĂƚƚŚĞƉƌŽĚƵĐƚ

c o u l d b e c l o s e d d o w n d u e t o l a c k

of interest.

ĮŶĂůĐŽŶƐŝĚĞƌĂƟŽŶŝƐƚŚĂƚ

dividend-focused products are

ŵŽƌĞĞdžƉĞŶƐŝǀĞƚŚĂŶƚƌĂĚŝƟŽŶĂů

broad-market ETFs. Therefore an

ĂůƚĞƌŶĂƟǀĞĂƉƉƌŽĂĐŚŵŝŐŚƚďĞ

ƚŽůŽŽŬĂƚĂƐƚƌĂŝŐŚƞŽƌǁĂƌĚ&d^

100 ETF given that the blue chip

ŝŶĚĞdžŝƐLJŝĞůĚŝŶŐκ͘ϳйĂƚƉƌĞƐĞŶƚ͘

An example is iShares Core FTSE

100 (ISF) which tracks the index

ĨŽƌĂůŽǁĐŽƐƚŽĨϬ͘Ϭϳй͘

ETF Code

Ongoing

charges

Historic

yield

ŝ^ŚĂƌĞƐh<ŝǀŝĚĞŶĚ /h< 0.40% 6.9%

WisdomTree UK Equity Income th< 0.29% 6.1%

BMO MSCI UK Income Leaders ZILK 0.25% 4.9%

Invesco FTSE RAFI UK 100 PSRU 0.39% 4.5%

^WZ^ΘWh<

ŝǀŝĚĞŶĚƌŝƐƚŽĐƌĂƚƐ

h<s 0.30% 4.0%

Source: ETF provider factsheets

COMPARING INCOME ETFS

By Tom Sieber

ĞƉƵƚLJĚŝƚŽƌ