Daily ETF Watch: Dividend Fund Launches

December 16, 2015

Today Guggenheim Investments introduced a fund tracking a yield-weighted version of the Dow Jones industrial average. While the DJIA is price-weighted, the index underlying the Guggenheim Dow Jones Industrial Average Dividend ETF (DJD) weights DJIA components meeting certain requirements by their dividend yield.

The DJIA itself is a very subjective benchmark. Companies are selected by a committee based on decidedly nonquantitative criteria. Basically, companies cannot be classified as utilities or transportation companies, and must have a top-notch reputation accompanied by strong growth. The companies must also all be widely held by both retail and institutional investors.

DJD’s index takes it a step further by requiring that its components also have paid out consistent dividends over the previous 12-month period. However, that basically applies to all the companies in the DJIA, so DJD’s index includes all 30 DJIA components.

Of those holdings, Chevron has the largest weighting in the fund, at 6.44%, followed by Verizon Communications, at 5.11% and General Electric, at 4.79%.

DJD comes with an expense ratio of 0.30%.

DB Funds See Cap Gains

Deutsche Bank has released the capital gains estimates for its ETFs, and while 18 of its funds had no expected capital gains, another 15 did—a few of them quite sizable.

ETFs are known for being able to minimize capital gains and being very tax efficient. That’s due to a few reasons, but can mainly be attributed to the in-kind redemption feature, which allows ETF issuers to offload the stocks with the lowest possible tax basis to APs that are redeeming ETF shares.

However, five funds in the Deutsche Bank family had very noticeable capital gains. The worst by far is the $437 million Deutsche X-trackers Harvest CSI 300 A-Shares ETF (ASHR | D-55), which has an estimated total capital gains distribution of $5.84. Meanwhile, its sister fund, the $35 million Deutsche X-trackers Harvest CSI 500 China-A Shares Small Cap ETF (ASHS | F-55), is expected to have a total capital gains distribution of $2.63.

The only fund that comes remotely close to the two China funds in terms of capital gains is the $4 million Deutsche X-trackers MSCI Mexico Hedged Equity ETF (DBMX | C-54), with a distribution of $1.31, while the $9 million Deutsche X-trackers MSCI Asia Pacific ex Japan Hedged Equity ETF (DBAP | F-75) and the $1.7 billion Deutsche X-trackers MSCI Japan Hedged Equity ETF (DBJP | B-84) have estimated total distributions of $0.86 and $0.84, respectively.

For the hedged ETFs, much of those capital gains could be due to gains from holding currency forward contracts to effect the hedges that are part of the funds’ strategies. DBJP, at least, has had this happen before.

The remaining 10 funds with capital gains each have estimated total distributions of $0.52 or less.


Contact Heather Bell at [email protected].

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