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
Clime Investment Management has welcomed an independent director to its board, which follows a series of recent appointments at the company.
Ethical investment manager Australian Ethical has cited the ongoing challenging market environment for its modest decrease in assets over the latest quarter.
Commentators have said Australian fund managers are less knowledgeable compared with overseas peers when it comes to expanding their range with ETFs and underestimating the competition from passive strategies.
VanEck is to list two ETFs on the ASX next week, one investing in residential mortgage-backed securities and the other in Indian companies.
