Ossiam has launched the Ossiam iStoxx Europe Minimum Variance High Dividend UCITS ETF (Xetra: OSXN), offering investors access to European equities with high dividend yields, while minimising portfolio volatility through a smart beta optimization process.
The Ossiam iStoxx Europe Minimum Variance High Dividend UCITS ETF (Xetra: OSXN) tracks 100 high yielding European equities while weighting constituents in such a manner as to reduce portfolio volatility.
The fund tracks the iStoxx Europe Minimum Variance High Dividend Index which references the performance of the 100 constituents of the STOXX Europe 600 Index with the highest dividend yield (based on current annualized dividend yield). Stocks are also screened by other characteristics, including a history of paying dividends and dividend growth rates, in an effort to boost the sustainability of the index’s dividend yield.
Index constituents are weighted according to their variance/covariance characteristics in order to reduce the portfolio’s historical volatility. Additional constraints are introduced to avoid extreme asset, industry and country concentrations, and the index is rebalanced on a monthly basis.
Such high income strategies have grown in popularity in recent years as government stimulus across Asia, Europe and the United States have pushed bond yields to historically low levels and in certain circumstances into negative territory. They may suit investors searching for a higher level of income than lower yielding fixed income investments if the investor is willing to take on additional risk.
Low volatility strategies have also experienced a spike in popularity as investors seek new tools to deal with increasing volatility levels in equities markets caused by the US presidential election, uncertainty over the future course of interest rates, and potential fallout from Brexit.
As of 14 December 2016 the index’s largest country exposures are to France (18.4%), Spain (14.6%), the UK (14.4%), and Switzerland (14.0%). The largest sector exposures are to utilities (20.1%), financials (19.7%), industrials (14.9%), telecommunications (11.8%) and materials (7.8%).
The index is down 2.0% year-to-date.
The total expense ratio (TER) of the ETF is 0.65%.
The fund will broadly compete with the PowerShares Euro Stoxx High Dividend Low Volatility UCITS ETF (LON: EUHD). Tracking the Euro iStoxx High Dividend Low Volatility 50 Index, the ETF provides access to Eurozone-listed stocks with high dividend and low volatility characteristics. The fund’s TER is 0.30%.