Deutsche to introduce quality screen to Euro Stoxx dividend ETF

Feb 28th, 2018 | By | Category: Equities

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Deutsche Asset Management has announced changes to the underlying index for the Xtrackers Euro Stoxx Select Dividend 30 UCITS ETF (XD3E LN) to a new reference that includes a quality screen in its selection of eurozone dividend-paying stocks.

Deutsche to introduce quality screening to euro STOXX dividend ETF

The change in name and index will occur on 16 March 2018.

The fund, which is listed on Xetra, LSE, SIX Swiss and Nasdaq Stockholm, currently tracks the Euro Stoxx Select Dividend 30 Index.

This index reflects the performance of the 30 shares from within the eurozone that have the highest outperformance factor based on the firm’s dividend yield compared to the average dividend yield in that company’s home country.

To be eligible for index inclusion, companies must also have a positive historical five-year dividend-per-share growth rate and a payout ratio of less than 60%. Constituents are weighted according to their dividend yields in order to enhance exposure to the income factor.

While the requirement for firms to have a payout ratio below 60% goes some way in limiting exposure to the dividend yield trap (when a firm with a seemingly high dividend yield ends up cutting or scrapping the dividend due to its unsustainability), the index does little else in terms of screening for high quality firms. This is set to change when the ETF adopts the Euro Stoxx Quality Dividend 50 Index.

The new index provides a slightly more diversified exposure with 50 stocks, which have been selected based on quality (defined by a set of three different factors: 12-month trailing dividend yield, 12-month trailing payout ratio, and 3-year free cash flow yield growth rate) and dividend yield.

The new index has a higher exposure to Germany compared to the former (30.1% vs 21.0%) and a lower exposure to France (24.0% vs 30.3%). Finland takes the third largest country exposure in the old index at 14.0% but accounts for just 3.0% in the new. The next largest country exposures in the quality index are The Netherlands and Spain, both at 13.8%.

The major sector changes in the new index is a greater exposure to telecommunications (13.6% vs 6.3%) while exposure to insurance companies has fallen from 22.1% to 11.4%.

Reflecting the change in underlying index, once the switch is complete the fund will be renamed the Xtrackers Euro Stoxx Quality Dividend UCITS ETF. Its ticker code will remain the same. The change in name and index will take place on 16 March 2018.

The fund is over ten years old, having launched in March 2007. Since then it has accumulated €180 million in assets under management. Its total expense ratio (TER) is 0.30%.

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