Russell launches two high dividend yield factor-based ETFs

Mar 15th, 2012 | By | Category: Equities

Global investment manager Russell Investments has expanded its line-up of ‘smart beta’ or factor-based ETFs with the launch of two high-dividend yield funds on the NYSE Arca.

Russell launches two high dividend yield factor-based ETFs

Russell Investments has launched two high dividend yield ETFs that select companies based on measures of financial strength including cash flow, return on equity and analyst forecasts for earnings growth.

The two funds, the Russell High Dividend Yield ETF (HDIV) and the Russell Small Cap High Dividend Yield ETF (DIVS), seek to track the Russell US Large Cap High Dividend Yield and Russell US Small Cap High Dividend Yield Indices, respectively, providing exposure to quality companies that demonstrate high and sustainable dividend yields.

Each of these new ETFs is composed of dividend-paying companies with strong fundamental characteristics (such as their ability to pay a higher dividend yield), exhibit sustained dividend growth, and deliver earnings stability.

The fundamental characteristics of each company are evaluated by measures of financial strength including positive cash flow, return on equity and analyst forecasts for earnings growth. Once the universe is screened for financially strong securities, the constituents are selected to help maximise dividend yield.

Greg Friedman, managing director of Russell’s global ETF product group, said: “These measures of financial strength were created to help investors avoid chasing dividend yield, where quality is often sacrificed in search of higher yield.

“By using quality screens embedded in the underlying transparent, rules-based indexes, we believe Russell has improved upon structural weaknesses common in traditional dividend products and brought an improved total return approach to the ETF marketplace. We’ve leveraged the best of Russell’s core capabilities to offer investors an efficient, cost-effective way to access high-dividend-paying, quality-oriented companies.”

David Koenig, investment strategist at Russell, added: “Russell research has shown that a total return approach that relies on a combination of dividends and capital appreciation can offer a more advantageous investment outcome than a simple dividend-yield strategy.

“Focusing solely on dividend yield runs the risk of selecting securities that may have high dividend yields because they may be distressed and their price is falling or choosing companies that finance dividend payouts with debt.”

This latest launch follows the 2011 debut of the Russell Investment Discipline ETFs and the Russell Factor ETFs, as well as the re-brand of the Russell One Fund ETF. With the addition of the High Dividend Yield ETFs, Russell currently offers 26 ‘next-generation’ ETFs in the US market.

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