Analyse: SPDR S&P US Dividend Aristocrats ETF

While many investors dream about the thrill of capital gains, through history much of the total return from equities has come in the form of dividends. A policy of regularly paying out earnings forces discipline on corporate management, lowering the odds of destructive acquisitions. And dividends give investors a ‘bird in the hand,’ rather than just the promise of enhanced enterprise value at an unidentified point in the future. Amidst an uncertain political and economic backdrop, U.S. companies have vast amounts of cash on their balance sheets and will increasingly be under pressure to do something with it. That may mean handing capital back to investors in the form of higher dividend payments. The S&P High Yield Dividend Aristocrats Index has vastly outpaced the S&P 500 since 2000, returning 7.78% per year versus just 0.85% for the broader benchmark. The Dividend Aristocrats Index also suffered less during the financial crisis, losing 38.2% in the year ending February 2009, against a 43.3% loss for the S&P 500. Because of the bias towards mature companies with more consistent revenue and income, this fund is likely to outperform the broader benchmark in times of market stress, and could be correspondingly expected to underperform in raging bull markets. At the time of writing the S&P High Yield Dividend Aristocrats Index had a dividend yield of 3.16%, versus a yield of 2.24% for the broader S&P 500. The United States has continued to show lacklustre progress towards economic recovery. The unemployment rate, while down from its highs, is still stubbornly lofty at 7.7%. GDP advanced at an annualised pace of 2.7% in the third quarter of 2012. One recent bright spot is that the long-anticipated recovery in U.S. housing seems to be taking hold. The S&P/Case Shiller Home Price Index 20-city composite was up 0.3% for the month of September, its sixth consecutive monthly rise, although it is still down roughly 30% from its 2006 peak. The balance of power in U.S. politics remains broadly the same after the elections in November, with Barack Obama winning a second term in the White House, the Democrats maintaining control of the Senate, and the Republicans the House of Representatives. Elected officials have now turned their attention to the “fiscal cliff,” a series of major spending cuts and an expiration of Bush-era tax cuts that will automatically trigger at the end of 2012 unless Congress interceded to change the law. There have been some reports of investors selling equity holdings to book capital gains early in anticipation of higher taxes in the new year. Were that strategy to become widespread it would put considerable downward pressure on stocks in the near term. To pick up the stimulus slack, monetary policy has been extremely accommodative. The Federal Reserve has lowered short term interest rates to near zero, and signalled that they will persist at current levels for the foreseeable future. It has embarked on several rounds of quantitative easing, and Chairman Ben Bernanke has indicated that he could well embark on further accommodative moves ‘as needed.’ Despite this, the market does not appear overly worried about inflation, as evidenced by 10-year yields recently trading as low as 1.7%.

Indexkonstruktion

The S&P High Yield Dividend Aristocrats Index is weighted by dividend yield, calculated by taking the total dividend payment from the previous 12 months and dividing by the stock price on the calculation date. The weighting of any one stock is capped at 4% at the time of the quarterly rebalancing. The index contains stocks selected from the universe of securities within the S&P 1500, and employs screens to ensure minimum size and trading volume. Rather than focusing only on the highest yielding stocks, the index seeks those with a record of consistency of dividend growth. To be considered for the index, companies must have increased their dividend for at least 20 consecutive years. Whereas previously only the top 60 ranked stocks were included in the index, all qualifying stocks will now be eligible as a result of methodology changes in July 2012. The index currently consists of 81 names. A committee maintains the index, rebalancing quarterly and making changes as needed. If a constituent falls out of line with any of the index’s entrance criteria, the committee can use its discretion to keep it in the index if the change is deemed temporary. This limits portfolio turnover. As of December 18th, the top sector exposures were Consumer Staples at 20.9%, Financials at 16.0%, and Industrials at 15.8%. Top individual positions were Avon, Pitney Bowes, and AT&T, with respective weights of 2.7%, 2.6%, and 2.4% at the end of October.

Fondskonstruktion

The fund uses full physical replication to try to capture the performance of the S&P High Yield Dividend Aristocrats Net Total Return Index, owning – to the extent possible and efficient – shares in all of the underlying constituents in the same weights as those of the index. In certain circumstances it may also use derivatives to achieve its objectives. The fund is Irish-domiciled and has the U.S. dollar as its base currency. At the time of writing it had assets of $675 million. Cash received as dividends from the underlying stocks is held by the fund until distributions are made to fund unitholders on a quarterly basis, currently at an annualised yield level of 3.16%. This can create a cash drag on the portfolio, causing it to underperform its benchmark in rising markets, and outperform in declining markets. The fund does not currently engage in securities lending; as such, investors are not directly exposed to any counterparty risk.

Gebühren

The fund’s total expense ratio (TER) is 0.35%, which is middling relative to other funds offering exposure to large-cap value stocks in the U.S. Other costs potentially borne by the unitholder but not included in the total expense ratio include bid-ask spreads on the ETF, transaction costs on the infrequent occasions when the underlying holdings change, and brokerage fees when buy and sell orders are placed for ETF shares.

Alternativen

To get exposure to the U.S. Equity Large Cap Value category, there are a few choices, albeit referencing different underlying indexes. Possible alternatives include iShares DJ US Select Dividend, which gives access to the 100 highest dividend-paying stocks in the Dow Jones U.S. Index, Lyxor ETF Russell 1000 Value, which does not specifically target high dividend payers, and PowerShares FTSE RAFI US 1000 Fund, which uses fundamental indexing. Of these, the SPDR fund is the largest. The fund with the lowest expense ratio is the iShares product, with a TER of 0.31%.