WisdomTree, the exchange-traded fund (“ETF”) and exchange-traded product (“ETP”) sponsor announced the launch of the WisdomTree Eurozone Quality Dividend Growth UCITS ETF (EGRA) on the London Stock Exchange. The ETF complements the existing range of dividend growth ETFs which were launched last month: WisdomTree US Quality Dividend Growth UCITS ETF (DGRA) and WisdomTree Global Quality Dividend Growth UCITS ETF (GGRA) on the London Stock Exchange.
WisdomTree’s Quality Dividend Growth methodology puts an emphasis on the shifting trends in dividends and focuses on fundamental metrics that the company believes are associated with future dividend growth potential. These strategies use quality metrics focused on companies who are growing their dividends using the following criteria:
- Growth: Long-Term Earnings Growth Expectations
Firms expected to grow their earnings faster, based on consensus analyst estimates, should have greater potential to increase future dividends.
The constituents selected by WisdomTree’s Quality Dividend Growth Indices exhibit consistently higher median dividend growth compared to market capitalisation-weighted benchmarks excluding Emerging Markets.
- Quality: Combining Quality Factors to Target Earnings Inputs
Three-year average return of equity (ROE) and return on assets (ROA) figures are used to determine how efficiently firms are generating profits.
Whilst ROE offers a means of gauging profitability, it can be inflated by leverage. ROA offers a means of mitigating overleverage, and combined with ROE, offers a way of screening for sustainable earnings.
Viktor Nossek, Director of Research at WisdomTree Europe said:
“We believe that companies that can grow their earnings also have the greatest potential to raise their dividends. Our proprietary quality dividend growth strategies are aligned with Warren Buffet’s approach of investing in companies with a robust return on equity (ROE) and return on assets (ROA) – those with little or low debt. These types of dividend-related strategies are core the WisdomTree investment philosophy.”
Nizam Hamid, ETF Strategist at WisdomTree Europe said:
“We always look to bring to market innovative products across our dividend-oriented investment strategies. In this current low-interest rate environment, we believe a quality tilt in the Eurozone may appeal to investors looking for a strategy that concentrates on forward looking fundamentals. The screening methodology we employ for these quality dividend products ensures higher weights in technology and consumer staples along with low weights in financials.”
The WisdomTree’s Quality Dividend Growth methodology places an emphasis on future dividend potential. Kenneth French and Eugene Fama’s, “A Five-Factor Asset Pricing Model”* academic paper showed that the highest quality basket of stocks in the US market outperformed by 1.5% per annum from 1963 to 2016, leading to double the market’s return. Research by MSCI for the Norwegian Ministry of Finance** also highlighted the benefits of focusing on income and dividends with 78.6% of equity returns over the past 10 years coming from a combination of dividend growth and dividend yield, rising to 93% over 20 years. Warren Buffet has also espoused quality traits in his long run approach to investing.
|Fund||Ticker||ISIN||Listing Currency||Base Currency|
|Eurozone Quality Dividend Growth UCITS ETF – EUR Acc||EGRA||IE00BZ56TQ67||EUR||EUR|
|Eurozone Quality Dividend Growth UCITS ETF – EUR Acc||EGRG||IE00BZ56TQ67||GBx||EUR|
* September 2014
** Global Markets & Return Drivers, Abhishek Gupta, Dimitris Melas, Raghu Suryanarayanan, and Andras Urban (February 2016)