ETF Watch: Janus Debuts Int'l Quality Income Fund

Janus Capital Group has rolled out an ETF focused on quality and dividend yield that tracks an index provided by Societe Generale. The Janus SG Global Quality Income ETF (SGQI) comes with an expense ratio of 0.45%.

The fund is listed on the Nasdaq stock exchange.

SGQI tracks the SGI Global Quality Income Index, which is a popular index in Europe and already has a European ETF based on it, among other assets tied to the index. The methodology targets nonfinancial companies in developed markets with more than $3 billion in market capitalization, evaluating them based on nine quality criteria, “distance to default” creditworthiness criteria and dividend yield. According to the prospectus, “in the long run, quality companies that pay sustainable and higher dividends are a more reliable source of return than companies that take higher risks.”

Or, as Janus Senior Vice President and Head of Exchange Traded Products Nick Cherney put it, “The idea is that if you’re starting with high yield, then your view of quality really should be driven by your view of the likelihood that the company is going to be able to continue to deliver high yield.”

Methodology

The fund’s methodology uses the Piotroski F-Score test criteria to evaluate the quality of companies, and eligible firms must fulfill at least seven out of the nine criteria. It also uses the Merton distance to default model, which relies on debt and equity ratios, to determine a company’s default risk, selecting stocks that fall in the top 40% of the selection universe, Cherney says. Finally, eligible companies must have a dividend yield that is either more than 4% or equal to more than 125% of the cap-weighted dividend yield of the aggregate selection universe, whichever is higher, the prospectus says.

“Just going for the highest-yielding stocks, not only does it not produce the highest-yielding portfolio going forward, but it doesn’t lead necessarily to the highest-quality returns. The idea is to find high-yielding stocks that can sustain their dividend yield over time,” Cherney said.

“A lot of high-dividend yielding stocks are not high quality,” he added.

Ultimately, the methodology produces an equal-weighted index of 25 to 75 components, with no limits on allocations to non-U.S. stocks.

Contact Heather Bell at [email protected].