Today Principal Global Investors is rolling out an actively managed global dividend ETF. The Principal Active Global Dividend Income ETF (GDVD) will occupy a singular space in the pantheon of U.S.-listed ETFs, as there are no other funds in that particular niche.
“If you look at the ETF landscape, I’d say there’s generally a very sparsely filled hole for active equities. You have a lot of great options in the active fixed-income ETF landscape, but you are not seeing a lot of branded managers launching active strategies in the equity space, and the reasons are pretty obvious,” said Paul Kim, head of ETF strategy at Principal. He cites the disclosure requirements associated with ETFs, and notes that while many active managers have filed to launch actively managed ETFs, few currently have such products trading.
GDVD comes with an expense ratio of 0.58% and is listed on the Bats exchange. Bats Global Markets is owned by ETF.com’s parent company, CBOE.
Among actively managed global equity ETFs, GDVD comes in at a very low price point, with only one fund ranking below it. However, the recently launched ClearBridge All Cap Growth ETF (CACG), which has an expense ratio of 0.53%, is a growth ETF, while GDVD can invest in both growth and value stocks.
GDVD is primarily an income-focused fund. It uses a quantitative approach to evaluate industries and companies to select equities that pay—and are likely to continue paying—dividends. The strategy has been available at Principal in a separately managed account wrapper and as a sleeve within broader strategies, but not as a mutual fund, according to Kim.
The fund can invest across the size spectrum, though it will be focused more in large-cap equities, and at least 40% of the portfolio will comprise developed and emerging market non-U.S. equities. The prospectus specifies that the non-U.S. holdings will be “tied economically” to at least three foreign countries. GDVD is benchmarked to the MSCI ACWI.
At launch, the fund will be seeded with $165 million and hold a portfolio of roughly 60 equities.
Low Turnover Expected
Kim cites global equities as an increasingly important source of income for investors in a low-yield environment, and notes that the fund is expected to achieve a yield in the low 3% area. GDVD is expected to have very low turnover, generally holding stocks for three years or more. Kim sees benefits to using a buy-and-hold strategy in an investment environment where high turnover is the norm.
“We think there’s an opportunity for active managers who are willing to buy and hold and really wait for—as others have described it—the ‘bad pitch,’” he said.
“There’s always a need for strong equity income strategies on any platform because of how large the need for income is across the investor space. So that’s what we’re trying to address—a very large need, leveraging our long history of managing outcome-based and equity income strategies, and marrying it to the benefits of an ETF,” Kim added.
Contact Heather Bell at [email protected].