Janus Capital has launched the Janus SG Global Quality Income ETF (Nasdaq: SGQI), a smart beta exchange-traded fund designed to track the performance of global quality companies with attractive and sustainable dividends.
Nick Cherney, Senior Vice President and Head of Exchange Traded Products for Janus Capital Group.
The theory behind the strategy is that dividends can be a major source of investment return, while firms whose financial statements are of lower quality may not be able to sustain their dividend pay-outs in the long-run.
Underlying the ETF is the SGI Global Quality Income Index, created by Societe Generale Index, the indexing division of the French multinational banking and financial services company. The index is composed of non-financial companies listed in developed countries with a free-float-adjusted market capitalization greater than $3bn.
For its quality screen, the index applies a rules-based approach using Piotroski’s nine quality factor model (analysing return on assets in the current year, growth in return on assets, operating cash flows, long term debt ratios, current ratios, the extent of new share issuances, gross margins, and asset turnover ratios). Only those firms returning positive scores in at least seven of the factors secure a place in the second screening round.
Each firm’s balance sheet strength is further analysed with a focus on profitability, operating efficiency and leverage ratios with only the highest ranking 40% making the grade. Of these stocks, only those whose expected dividend yield is above 4%, as determined by analysts’ consensus, are included in the final index (as of 8 December 2016 the yield on the index is approximately 4.5%).
At each quarterly rebalance, each stock is assigned an equal weight in the index, avoid the tendency of overweighting overvalued firms commonly observed in market cap-weighted strategies.
Following the most recent screening processes, there are currently 38 constituents in the index with a weighted average market cap of $40.8bn and a median market cap of $17.4bn. The largest country exposures are to the US (27.2%), Australia (23.7%), Canada (13.8%), the UK (7.0%) and New Zealand (5.3%). The largest sector exposures are to utilities (28.8%), telecommunications (20.6%), consumer discretionary (11.3%), consumer staples (10.4%) and materials (8.4%).
Nick Cherney, Senior Vice President and Head of Exchange Traded Products for Janus Capital Group, commented: “We are committed to helping clients build portfolios which have the potential to outperform or reduce risk relative to market cap weighted alternatives, and when it comes to the search for yield, finding quality income should be a key component.”
The index is up 6.2% year-to-date with an annualized volatility of 12.9%. This compares favourably to the MSCI World Index which has risen 5.2% over the same period. Over the past three years the fund’s index is up 11.4% per annum with an annualized volatility of 12.5%.
Source: Societe Generale.
The fund charges a total expense ratio (TER) of 0.45%.
While this is the first time the SGI Global Quality Income Index has been used as the underlying for an ETF in the US market, it is currently the engine behind the Lyxor SG Global Quality Income NTR GBP Monthly Hedged UCITS ETF (LON: SGQD) which launched in Europe in September 2015. The fund also has a TER of 0.45% and has assets under management of $909m.