3 Passive Funds for Income

After six years of record low interest rates income seekers are constantly on the look out for new sources of yield. These dividend focused ETFs could provide a solution

Kenneth Lamont 6 May, 2015 | 4:28PM
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Kenneth Lamont: The prevailing low-rate environment has seen income-starved European investors turn increasingly to dividend-orientated equity ETFs to help meet their needs.

Unlike traditional cap-weighted equity ETFs these ‘strategic beta’ funds track a benchmark designed only to select stocks with a history of paying or regularly increasing dividends. Such screens have long been used by active managers, but can now be offered in a passive fund wrapper at a fraction of the cost.

Exactly how stocks are screened and weighted varies from fund to fund, so when selecting between them it is important to understand the differences in exposure.

For example if we look at European equities space, currently the most popular ‘strategic beta’ dividend offering; the iShares Euro Dividend ETF (IDVY), screens for 30 stocks based on dividend growth rates over a five-year period.

The SPDR S&P Euro Dividend Aristocrats ETF (EUDV) on the other hand, screens for 40 stocks over a 10 year period.

Another interesting fund is the Amundi MSCI EMU High Dividend ETF (CD8), which also selects securities on additional ‘quality’ factors such as return on equity, earnings variability, debt to equity and price performance.

Unlike both the iShares and SPDR funds, which weight stocks based on their dividend performance, the Amundi offering weights holdings using a market cap methodology.

 

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Amundi ETF MSCI EMU High Dividend132.30 EUR1.15Rating
iShares Euro Dividend ETF EUR Dist GBP1,635.30 GBX0.36Rating
SPDR® S&P Euro Dividend Aristocrats ETF GBP18.28 GBP0.14Rating

About Author

Kenneth Lamont  is a passive funds research analyst for Morningstar Europe.