Lonsec cautions on high yield ETFs
Investment research house Lonsec has warned investors to be aware of what they are really gaining exposure to when chasing yield via high-yield exchange-traded funds (ETFs).
ETF issuers have sought to benefit from a search for yield resulting from subdued global growth prospects, according to Michael Elsworth, general manager - specialised research at Lonsec.
"High divided ETFs are designed to track indices that measure a filtered universe of stocks that hopefully provide above market average dividends," he said.
But not all ETFs are the same, and even high-yield ETFs have different asset classes or sectors underpinning the investment, so it is important to appreciate the different rules governing the construction of each index, Elsworth said.
There were significant variations between the portfolio of stocks held by high-dividend ETFs offered from iShares, Russell, SPDR and Vanguard at a specific point in time - although they were supposedly in the same category, he said.
Lonsec also noted that the Russell, SPDR and Vanguard funds all had:
- more than 40 per cent exposure to the financials ex-property trusts sector;
- none had meaningful exposure to the mining sector;
- the top 10 holdings of iShares were noticeably different to the other three ETFs with the least exposure to financials; and
- the iShares sector cap of 20 per cent was lower than the other high-dividend ETFs (resulting in greater diversification and small cap emphasis).
"There are subtle but important differences between ETFs, and the nature of each fund's underlying investment - such as equities, debt or hybrid securities - means returns have the potential to be vastly different," he said.
Recommended for you
Natixis Investment Managers has hired a distribution director to specifically focus on the firm’s work with research firms and consultants.
The use of total portfolio approaches by asset allocators is putting pressure on fund managers with outperformance being “no longer sufficient” when it comes to fund development.
With evergreen funds being used by financial advisers for their liquidity benefits, Harbourvest is forecasting they are set to grow by around 20 per cent a year to surpass US$1 trillion by 2029.
Total monthly ETF inflows declined by 28 per cent from highs in November with Vanguard’s $21bn Australian Shares ETF faring worst in outflows.
