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VictoryShares, the exchange-traded fund brand of US-based asset manager Victory Capital, has launched a new ETF providing exposure to US large-cap equities that are forecast to have growing dividends.
Listed on Nasdaq, the VictoryShares Dividend Accelerator ETF (Nasdaq: VSDA) tracks the Nasdaq Victory Dividend Accelerator Index, a smart beta index co-developed with Nasdaq Global Indexes.
The index uses fundamental criteria to select companies with the highest likelihood of consistently growing dividends year over year. Importantly, the index does not necessarily pick the highest yielding securities but focuses instead on dividend sustainability. It seeks to identify companies early in their lifecycles and assemble them in a rules-based portfolio that emphasizes growing dividends per share.
The methodology selects 75 companies from the parent Nasdaq US Large Mid Cap Index based on 15 factors designed to measure the firm’s dividend quality: dividend yield, net income stability (10 years), return on equity, sales stability, return on invested capital, return on equity trend, pre-tax income to debt, cash to market value, dividend consistency, price volatility, trailing P/E, size, gross margin, years of continuous dividend growth, and net income stability (5-years). To be eligible for inclusion, firms must also have increased dividends for a minimum of five consecutive years.
The index employs a modified market capitalization weighting methodology using a combination of dividend yield and 10-year net income stability. It is reconstituted annually and rebalanced quarterly.
The largest sector exposures in the index are to consumer staples (25.0%), industrials (20.6%), consumer discretionary (16.7%) and financials (13.3%). The largest single holding is Automatic Data Processing with a weight of 3.5%.
“Today’s investors are looking for innovative and differentiated ways to capture income,” said Mannik Dhillon, president, Victory Capital. “We are pleased to work with Nasdaq to develop a strategy that we believe offers investors the opportunity to grow dividend income over time.”
The fund has a total expense ratio (TER) of 0.35% due to a contractual fee waiver in place until at least 31 October 2018. Its gross expense ratio is 0.71%.
According to Victory Capital, the VictoryShares ETF platform is designed to provide investors with rules-based solutions that bridge the gap between the active and traditional passive elements of their portfolios. The expanded product line builds upon the existing VictoryShares volatility-weighted ETFs, which have grown to more than $1.2 billion in AUM.
VSDA marks the first in a series of planned ETF launches by Victory Capital, each tracking an index developed with Nasdaq. The firm has announced the expanded platform will seek to build out its strategic beta capabilities by offering a variety of investment outcomes, including maximum diversification, dividend income, downside protection, minimum volatility and targeted factor exposure.
Dave Gedeon, vice president and head of research & development at Nasdaq, said: “Nasdaq is committed to creating powerful strategies and methodologies for key investment growth areas including potentially enhancing dividend income. We are excited to work with VictoryShares to provide a world-class index for the benchmark in this important market segment that is designed to help generate an outcome of consistent and growing dividends per share on an index level.”
There are several US-listed ETFs that apply similar methodologies to a range of US dividend-paying equities. These include the $2.6 billion ProShares S&P 500 Aristocrats ETF (Bats: NOBL) which targets S&P 500 constituents that have increased their dividends for at least 25 consecutive years. Its TER is 0.35%.
Alternatively, the $5.3bn Schwab US Dividend Equity ETF (NYSE: SCHD) includes 100 stocks based on strong fundamentals, dividend yields and consistent dividend payouts for at least 10 consecutive years. Its TER is just 0.07%.
The $460 million iShares MSCI USA Dividend IQ UCITS ETF (LON: QDIV) provides a direct investment into equities which have higher than average dividend yields and which have track records for consistently paying dividends and the capacity to sustain dividend payments. Its TER is 0.35%.
The $2.8bn SPDR S&P US Dividend Aristocrats UCITS ETF (LON: UDVD) tracks a portfolio of stocks from the S&P Composite 1500 Index that have boosted their dividends for a minimum of 20 straight years. The fund also costs 0.35%.