Simply put, dividend funds are among the most popular ETF
styles available to investors today. Inflow data proves the
point. In a research note
published by Morningstar earlier this month
, the firm notes "total assets in the group are about $45
billion, up from just $8 billion three years ago."
have also "averaged about $800 million in monthly net inflows
over the past three years," according to Morningstar. Oh, by the
way, those statistics apply only to dividend ETFs focusing on
U.S. equities. That is to say, when accounting for inflows to
emerging markets dividend funds, the numbers are almost certainly
Fueled by today's anemic interest rate environment, dividend
ETFs are popular, but the market is not saturated. At least not
in the eyes of ETF sponsors, which continue to bring new dividend
ETFs to market.
Keeping with that theme, the FlexShares Quality Dividend
Defensive Index Fund (
) made its trading debut today, December 19, 2012. "QDEF seeks to
provide exposure to the long-term growth potential of U.S.
securities while providing dividend payments. It is intended as a
core stock market option that also helps investors try to meet
their income needs,"
according to FlexShares
, the ETF unit of Northern Trust (NASDAQ:
Home to 177 U.S. stocks with a weighted average market
capitalization of $86 billion, QDEF enters an arena fraught with
competition. Major ETF issuers ranging from iShares to Vanguard
and plenty of others offer comparable, blue chip-focused dividend
However, it is important to note that not all dividend ETFs
are created equal. Some use dividend increase streaks as the
primary weighting methodology. Others focus more on yield while
others screen for dividend growth potential.
To its credit, QDEF offers its own unique approach. The fund
uses a proprietary scoring model and an optimization process. All
of that is a fancy way of saying QDEF's primary goals include
having a beta lower than its index (the Northern Trust 1250
Index) and better dividend yield than that index. As QDEF is a
brand new ETF, yield information is currently not available.
However, the low beta objective has been accomplished as the
weighted average beta of QDEF's holdings is 0.88, according to
Impressive is the fact that QDEF has a relatively low beta
without excessive weights to some sectors known for being
low-beta destinations. For example, utilities and telecom combine
for barely more than 12 percent of the new ETF's weight.
Conversely, financial services and technology, two higher beta
sectors, combine for 35 percent of QDEF's weight.
Consumer staples is the third-larges sector weight at 12.6
percent followed by energy at 11.3 percent. Eight of the ETF's
top-10 holdings are Dow components with Altria (NYSE:
) and Accenture (NYSE: can) the exceptions. The top five holdings
are Exxon Mobil (NYSE:
), Chevron (NYSE:
), Pfizer (NYSE:
), Wal-Mart (NYSE:
) and Verizon (NYSE:
For now, the biggest hurdle facing QDEF is its status as a new
ETF. For better or worse, many investors, even professionals, shy
away from new ETFs for no other reason than that the funds are
new. Along those lines, it pays to note some FlexShares ETFs
have been prodigious asset gathers in short
amounts of time
The proof is in the pudding. The FlexShares Morningstar
Emerging Market Factor Tilt Index ETF (NYSE:
) debuted in September and has over $36.6 million in AUM. The
FlexShares Morningstar Developed Markets ex-US Factor Tilt Index
), which debuted on the same day as TLTE, has over $31 million in
Obviously, there are no guarantees QDEF will repeat that
success, but the fund's composition indicates this is one new ETF
conservative investors could quickly embrace as a "shelter from
the storm" play.
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