This New ETF Gets Defensive With Global Dividends
The dividend ETF craze continues to grow with another new entrant to the fray, that being the FlexShares International Quality Dividend Defensive Index Fund (NYSE: IQDE).
Northern Trust's (NASDAQ: NTRS) FlexShares unit rolled out the International Quality Dividend Defensive Index Fund on Tuesday as part of a trio of new dividend ETFs with focuses on international markets.
In a year when U.S. equities have outperformed many marquee global markets, investors looking for global exposure want to consider a conservative, defensive approach and IQDE aims to help with that objective. The new ETF pursues a beta less than the market, while mitigating sector, industry and security concentration risks.
Home to nearly 220 holdings, IQDE and its new comrades, the FlexShares International Quality Dividend Index Fund (NYSE: IQDF) and the FlexShares International Quality Dividend Dynamic Index Fund (NYSE: IQDY), are looking to build on the success of the three domestically-focused dividend ETFs FlexShares rolled out late last year.
Since their mid-December debuts, the FlexShares Quality Dividend Index Fund (NYSE: QDF), the FlexShares Quality Dividend Defensive Index Fund (NYSE: QDEF) and the FlexShares Quality Dividend Dynamic Index Fund (NYSE: QDYN) have attracted over $68 million in assets combined.
IQDE is a predominantly large- and mid-cap ETF as those capitalization spectrums combine for about 87 percent of the fund's weight. As is the case with other FlexShares dividend ETFs, IQDE uses "a proprietary quantitative methodology that uses fundamental data to assess the strength and quality of a company's dividend-paying record and prospects," according to the issuer.
That means IQDE breaks away from one of the more conventional dividend ETF weighting methodologies, that being weighting components by length of dividend increase streaks, to focus on management
efficiency and dividend policy; profitability; and cash flow to sustain dividend payments, as FlexShares points out.
At the sector level, IQDE allocates 27.6 percent of its weight to financial services stocks with energy being the only other group to get a double-digit weight at 11.35 percent. Health care, consumer staples, telecommunications and industrials all receive allocations in the neighborhood of nine percent. Utilities, a favorite sector for many income investors, represents just 7.25 percent of the new ETF's weight.
In terms of country exposure, IQDE has a heavy developed market bias with the U.K. and Japan combining for over 27 percent of the fund's weight. Australia and Canada combine for another 19 percent. While IQDE is positioned as a defensive play, there are some country weights that could be perceived as risky. For example, three of the ETF's top nine country exposures are Eurozone members France, Italy and Germany. Additionally, two of those nine countries are emerging markets Brazil and Turkey.
IQDE is the international equivalent of the aforementioned FlexShares Quality Defensive Index Fund, an ETF that has been a solid performer since inception. That fund, with a 30-day SEC yield of 3.12 percent, has returned about 11.4 percent since its December debut.
Obviously, there can be no guarantees that IQDE will mirror that performance and the new ETF's Eurozone exposure does present some challenges. In fairness, the Japan exposure should prove helpful if the yen continues to decline, boosting Japanese shares along the way. As it is, Japanese equities are Asia's best performers this year.
In terms of individual holdings, IQDE is littered with familiar, international blue-chips. The ETF's top-10 lineup includes GlaxoSmithKline (NYSE: GSK), Commonwealth Bank of Australia, Total (NYSE: TOT) and Eni (NYSE: E).
Less than two full trading days into IQDE's life, it is too early to render judgment on the new ETF, particularly without yield information available. However, it is worth remembering FlexShares has had prior success with dividend ETFs. More importantly, investors that are willing to go global these days should be compensated for that risk and it looks like IQDE. After all, the average dividend yield on GlaxoSmithKline, Eni and Total is over five percent.
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