Fidelity Investments Canada has launched a suite of factor-based ETFs on Toronto Stock Exchange. The six new ETFs focus on dividend-payers from across Canadian, US, and international equity markets.
Rob Strickland, President of Fidelity Investments Canada.
“Factor investing offers tremendous opportunity to bring innovation to the Canadian marketplace,” said Rob Strickland, President of Fidelity Investments Canada.
“Launching our new Fidelity Dividend Factor ETFs reinforces our commitment to delivering an exceptional experience to our clients, an experience not just in terms of the quality and breadth of the offering but also our innovative approach to investment management,” he added.
Suited for investors looking for current income, the ETFs distribute dividends on a monthly schedule.
High dividend
Four of the ETFs provide access to large- and mid-cap dividend-paying firms within their respective universes that are likely to continue to pay or grow their dividends.
Each fund tracks an in-house index that selects stocks based on a composite dividend score which is calculated based on a weighted average of three dividend metrics: dividend yield (70%), payout ratio (15%), and dividend growth (15%). Composite scores are calculated separately within each sector.
The methodology initially eliminates the top 5% of firms from each sector by payout ratio to lower the risk of potential dividend traps.
Index construction from this point is a relatively complex iterative process. The methodology essentially selects a percentage of stocks from each sector (or country/sector intersection) with the highest size-adjusted composite scores. The percentage of stocks chosen depends on the number of securities within that grouping.
Sectors are weighted according to their dividend yields relative to the broader equity market, and within each sector stocks are weighted by market capitalization subject to an overweight adjustment.
The ETFs in this subset include funds providing exposure to the Canadian, US, and international equity markets, as well as a currency-hedged version of the US product.
The funds and their management expense ratios (MERs) are as follows:
Fidelity Canadian High Dividend Index ETF (FCCD CN) MER 0.35%
Fidelity US High Dividend Index ETF (FCUD CN) MER 0.35%
Fidelity US High Dividend Currency Neutral Index ETF (FCUH CN) MER 0.38%
Fidelity International High Dividend Index ETF (FCID CN) MER 0.45%
Rising rates
Two of the ETFs provide exposure (hedged and unhedged) to US dividend-payers that are thought likely to outperform as interest rates rise.
The underlying index for this pair of ETFs calculates a weighted-average composite score for each stock based on the the same three metrics as the conventional high dividend ETFs but with an additional factor: correlation to ten-year Treasury yields.
The composite weights are dividend yield 63%, payout ratio 13.5%, dividend growth 13.5%, and correlation to ten-year Treasury yields 10%. Composite scores are again calculated separately within each sector.
The selection and weighting methodology is then identical to the high dividend indices.
The funds and their MERs are as follows:
Fidelity US Dividend for Rising Rates Index ETF (FCRR CN) MER of 0.35%
Fidelity US Dividend for Rising Rates Currency Neutral Index ETF (FCRH CN) MER 0.38%.