Tag Archives: ideas

New High Dividend ETF With Free Cash Flow Focus By Pacer

With the global market being edgy since the start of this year, demand for value-oriented and high-yielding products is high now. Agreed, every storm ends sometime and risk-on sentiments will return to the market. But this year seems to be a little different with growth worries expected to remain in the marketplace for a longer time (read: Enjoy High Yield with These Low Beta EM Local Currency Bond ETFs ). This operating backdrop makes the launch of Pacer Global High Dividend ETF (BATS: PGHD ) – launched by Pacer Funds Trust – extremely well timed. Let’s see how the fund is designed and what its prospects are. PGHD in Focus It is a strategy-driven, exchange-traded fund that looks to provide a steady stream of income and capital appreciation by picking companies with a high free cash flow (FCF) yield and an impressive dividend yield. The fund accomplishes its objective by tracking the Pacer Global Cash Cows Dividends 100 Index. The index first tracks 1000 companies in the FTSE all-world developed large-cap index. From the initial universe, 300 companies with the highest trailing 12-month free cash flow yield are chosen. From this set, 100 companies having the highest trailing 12-month dividend yield are picked to form the underlying benchmark. The fund currently holds 100 stocks. Currently, the U.S. is the top nation in the fund with over 35% weight followed by Switzerland (8.45%), the U.K. (7.14%) and Australia (6.77%). Sector-wise, Industrials (16.93%) and Consumer Staples (16.6%) dominate the fund with over 32% allocation, while Energy (5.8%) and Financials (0.82%) occupy the bottom two spots. The fund is equal-weighted in nature, with no stock accounting for more than 2.27% of the basket. Wal-Mart Stores, Altria Group and AT&T are the top three holdings of the fund. The fund charges 60 basis points in fees. As the name suggests, the fund is rich in yields with the Pacer Global Cash Cows Dividends 100 Index offering 5.06% annual yield (as of January 29, 2016). How Could it Fit in a Portfolio? The fund could be a good choice for value investors with a global market focus. Against the present low-yield backdrop worldwide, the hunt for higher yield is common among investors. This, accompanied by the higher free-cash flow yield criteria, provides the portfolio a value quotient as these companies traditionally suffered less during the economic upheaval, per the factsheet (read: 3 Dividend ETF Winners Year to Date ). Also, the issuer went on explain that higher free cash flow generating companies are also great tools to tap growth opportunities as these in turn result in capital gains. Moreover, the fund’s exposure to numerous economies is expected to provide huge diversification benefits to investors. However, investors should note that the ETF will be subject to severe currency risk. As such, the product is most suitable for long-term investors, willing to bear any currency volatility in the short run. ETF Competition The high dividend yield space is chockablock with products. From that angle it wouldn’t be easy for the fund gain enough market share. So, the fund will have to sell the highest free-cash flow yield feature to hog investors’ attention. This space is yet to be exploited. TrimTabs International Free-Cash-Flow ETF (NYSEARCA: FCFI ) normally grabs the attention of investors interested in the free-cash flow related funds. FCFI looks to track the international companies with the highest free cash flow yields. But since FCFI yields only 1.21% annually (as of February 24, 2016) and charges 69 bps in fees, the newly launched PGHD has chances to score more, with increased yield and a lower expense ratio. Link to the original post on Zacks.com

The Role Of Quality In Long-Term Value Creation

By Kelly Tang This is the third in a series of blog posts relating to the launch of the S&P Long-Term Value Creation (LTVC) Global Index . In the last blog, we discussed how long-term investing requires looking at metrics that go beyond the standard GAAP financial accounting measures and why the Economic Dimension (ED) score from RobecoSAM was the sustainability score that best complemented the long-term aim of the S&P LTVC Global Index. While the ED score may be a key metric of a firm’s long-term focus on its goals, it is also important to the index to identify how these policies have translated themselves and are reflected in the quality of a company’s earnings, balance sheet, and profitability. It is safe to say that the definition of quality and the characteristics of a high-quality company will generate numerous and varied responses from academics and analysts alike. In addition, the difference in opinion will persist in not only the definition, but also the number of metrics that should be used to gauge quality. Our colleagues previously examined the quality debate and presented their findings and S&P Dow Jones Indices’ stance in ” Quality: A Distinct Equity Factor? ” (Ung and Luk). The paper presented the framework for defining quality, which included categories such as profitability, earnings quality, and strength in balance sheet. The report included back-tested performance results, which showed that the proposed quality factor was beneficial in contributing to excess long-term investment returns. For the S&P Quality Indices, the following three metrics are used to define a quality company. Return on equity (ROE) was selected as the preferred metric for profitability, and companies with higher ROEs have sustained competitive advantages such as branding or competitive positioning, which help them maintain their profitability. Quality of earnings was another criterion to determine quality as measured by the balance sheet accruals (BSA) ratio (change in net operating assets/average operating assets). The BSA provides a way to measure how a firm scores in its earnings management; higher accruals are a potential red flag as higher levels of noncash items may lead to financial statement revisions. Finally, the financial leverage ratio was selected as the third metric to gauge balance sheet strength, with the rationale that high-quality companies have the ability to finance their ongoing business activities without having to incur excessive debt levels, protecting them in times of crisis. One of the key findings from Ung and Luk’s paper was that although quality strategies have performed well on their own, they appeared to work well when combined with other factor strategies as well. This was the basis for our thinking to combine quality with economic sustainability factors to create the S&P LTVC Global Index. In our final blog of the series, we will dig deeper into the unique structural aspects and performance attributes of the S&P LTVC Global Index. Disclosure: © S&P Dow Jones Indices LLC 2015. Indexology® is a trademark of S&P Dow Jones Indices LLC (SPDJI). S&P® is a trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a trademark of Dow Jones Trademark Holdings LLC, and those marks have been licensed to S&P DJI. This material is reproduced with the prior written consent of S&P DJI. For more information on S&P DJI and to see our full disclaimer, visit www.spdji.com/terms-of-use .

Tech ETFs That Braved The Storm In February

Among other reasons, the month of February 20 16 will be remembered for the broad-based sell-off in the tech space. In any case, a retreat from high-growth stocks kept this space off the radar, but the tension flared up when LinkedIn Corp. (NYSE: LNKD ) issued a lackluster guidance for the first quarter of 20 16 in early February (read: LinkedIn Crashes: Should You Connect with Social Media ETF? ). Along with LinkedIn, the famous FANGs (Facebook (NASDAQ: FB ), Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ) and Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) (i.e. Alphabet) were also hit hard. Notably, the famous four contributed a lot to last year’s tech surge. However, the bloodbath in these stocks dragged down the tech-laden Nasdaq exchange, forcing it to be the worst performing index among the top three U.S. indices. Nasdaq- 100 ETF (NASDAQ: QQQ ) was off over 1.8% in February while Technology Select Sector SPDR ETF (NYSEARCA: XLK ) lost about 1%. Apart from the LinkedIn-induced crash, overvaluation concerns, global growth issues and corporate recession were responsible for last month’s technology tantrum. Almost all ETFs catering to cyber security, the broader Internet, cloud computing and software were the hardest hit in the technology meltdown. Still, there are a few tech ETFs which dared the sell-off to end the month in the green. Below we highlight three such tech ETFs. iShares North American Tech-Multimedia Networking ETF (NYSEARCA: IGN ) – Up 6.8% This ETF provides a concentrated exposure to the domestic multimedia networking securities by tracking the S&P North American Technology-Multimedia Networking Index. Holding 26 securities in its basket, Motorola (NYSE: MSI ) takes the top spot with a 9.5% allocation. This is followed by Qualcomm (NASDAQ: QCOM ) (9.35%) and Cisco Systems (NASDAQ: CSCO ) (8.7%). The product has a definite tilt toward small cap securities that account for 43%, followed by mid caps at 34%. It has accumulated $78.9 million in its asset base while sees a moderate volume of around 7 1,000 shares a day. Expense ratio comes in at 0.48%. The fund has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a high risk outlook. PowerShares S&P SmallCap Info Tech ETF (NASDAQ: PSCT ) – Up 3.8% This fund tracks the S&P SmallCap 600 Capped Information Technology Index. It has amassed $377.5 million in its asset base and trades in average daily volume of about 4 1,000 shares. The ETF charges 29 bps in fees per year from investors. Holding 102 securities in its basket, the product is well spread across securities with none holding more than 3.5 1% share (read: 5 Small Cap ETFs & Stocks that Beat Russell 2000 in 20 15 ). From an industry look, about one-fourth of the portfolio is allocated toward electronic equipment, followed by semiconductors ( 19.43%) and software ( 16.29%). The product has a Zacks ETF Rank of 2 or a ‘Buy’ rating with a high risk outlook (read: Top Tech ETFs of 20 15: The Best from a Winner ). First Trust NASDAQ Technology Dividend Index Fund (NASDAQ: TDIV ) – Up 3. 1% This fund provides exposure to the dividend payers in the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $462.9 million in its asset base and trades in moderate volume of about 98,000 shares per day. The ETF charges 50 bps in annual fees and holds about 96 securities in its basket (read: ETFs to Tap on Cisco’s Upbeat Q4 Results ). Cisco occupies the top position in the fund, making up for roughly 8.23% of the assets followed by IBM (NYSE: IBM ) (8.04%) and Microsoft (NASDAQ: MSFT ) (8.0 1%). In terms of industrial exposure, the fund allocates nearly one-fifth portion in semiconductor and semiconductor equipment, followed by diversified telecom services ( 17%), software ( 15.52%), technology hardware, storage & peripherals ( 15.3%), and communications equipment ( 14.6%). Original Post