Behind Factor Bets In Dividend ETFs

November 01, 2018

Dividend ETFs have a clear appeal: generating income. And with dividend growth a recurring theme this year both in the U.S. and abroad, what’s not to like about an equity portfolio that shells out, say, an 8% dividend yield?

There are some 40 high dividend yield ETFs, several of which are billion-dollar-plus funds boasting good liquidity and narrow trading spreads. But these funds go about capturing dividend yields in very different ways, with stock selection, sector tilts and factor bets diverging significantly between comparable funds.

‘Superdividend ETF’

If you are looking for the highest-yielding ETF today, the Global X Superdividend ETF (SDIV) is your fund. With $910 million in total assets, the 96-holding portfolio is shelling out yields of 8%.

As far as global equity dividend ETFs go, SDIV is unbeaten in the quest for high yields. Its closest competitor in this segment would be the First Trust Dow Jones Global Select Dividend Index Fund (FGD), with yields of roughly 5%. FGD has 98 securities in its portfolio.

Beyond their yields, these two portfolios couldn’t be more different in country, sector and factor exposures. With the help of Bernie Nelson, president of Boston-based research firm Style Analytics, and for the sake of illustrating the importance of knowing what you own, consider the following differences that ultimately drive overall returns:

SDIV Vs. FDG

  • Country Allocation: SDIV is mostly a U.S. fund, with 58% of the portfolio tied to domestic stocks. FGD has a 16% allocation to the U.S. Other country weightings are also vastly different.

 

 

  • Sector Allocations: SDIV is massively invested in real estate and financials sectors at a combined 65% of the portfolio. FGD has 35% in financials, but it’s more diversified across other sectors such as consumer discretionary and telecom.

 

 

Many Factor Differences

Going one step further, factor analysis shows other key differences between these two ETFs. According to Nelson: 

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