Source, one of the largest providers of exchange-traded funds in Europe, has announced they will be the first European ETF issuer to license the newly launched FTSE RAFI Equity Income Index Series.

Source have collaborated with FTSE Russell and Research Affiliates to develop a suite of fundamentally-weighted high income ETFs.

The ETF issuer worked with index providers FTSE Russell and Research Affiliates to develop the series and will roll out a suite of ETFs based on the series in coming months.

Lee Kranefuss, Executive Chairman of Source, said: “Many investors have been struggling to generate income in the current environment, with bond yields low and with most high-yielding equity strategies being overly exposed to low quality or low growth stocks.”

He added: “Our investors said they want a strategy that focuses on dividends and is better-structured than what is currently available. This is why we approached Research Affiliates and, together with FTSE, have developed these new investment strategies.”

The new family of ETFs will target high dividend-paying, high quality stocks with sustainable income streams. This is achieved through a screening process which includes only companies with an above median dividend yield versus the parent index. These stocks are then assessed for financial sustainability using measures of profitability, lack of distress and accounting quality, with the lowest ranked quintile of companies excluded from the index.

In comparison to quality income ETFs from providers such as Lyxor and SPDR, the FTSE RAFI index series differentiates itself through the use an alternative weighting scheme. Through this, constituents are weighted by fundamental size and dividend yield, rather than market capitalisation. In comparison to traditional market capitalisation-based indices, which weight constituents according to a company’s public valuation, these indices focus instead on a company’s footprint in the economy. Through severing this link with price the indices set out to avoid systematically overweighting companies that are overvalued. This is in keeping with Research Affiliates’ findings which show that long-term returns can be improved by using constituent weightings based on fundamental characteristics.

Source have yet to disclose details of the launch date, cost and the variations of the ETF range.