SDIV: Super Dividend or No Dividend?

June 17, 2011 by  
Filed under Commentary, ETF IPOs (New ETFs)

Global X launched a new ETF last week (6/9/11), which is intended to provide investors with exposure to 100 of the highest dividend yielding equity securities in the world.  The Global X SuperDividend ETF (SDIV) hopes to track the total return performance (minus fees and expenses) of the Solactive Global SuperDividend Index.   However, it’s not clear whether or not SDIV will have a dividend of its own.

The underlying index was initially constructed from the 100 highest yielding securities (current holdings) from a global universe of stocks meeting a minimum yield requirement of 6% and various liquidity constraints.  Constituents will remain in the index during the annual February reconstitution as long as they are ranked among the 200 highest yielding and have a current yield in excess of 3%.  The 100 selected stocks will be equally weighted at 1% each during the annual reconstitution.

Unfortunately, Global X and the index provider both fail to offer up any yield data for the index or dividend payout plans for the fund.  I consider this a serious short-coming for any ETF that declares itself to be a high dividend fund.  The press release states “In an environment where people are seeking monthly income, the SuperDividend ETF offers convenient access…”, implying that the ETF will provide that monthly income.

However, SDIV does not have a monthly or quarterly distribution plan in place, and the prospectus (pdf) only requires an annual distribution.  Additionally, SDIV claims to be tracking a “total return” index, which leads me to believe the fund itself will have no yield at all.  Potential income-oriented investors need to know what to expect, but the current marketing materials provide no clues (or warnings).

Sector breakdown for SDIV is REITs 22.0%, Consumer Discretionary 16.0%, Telecommunications 16.0%, Financials 10.0%, Utilities 8.0%, Banks 5.0%, and others 23.0%.  Country allocation is U.S. 32.0%, Australia 24.0%, U.K. 10.0%, Canada 6.0%, Singapore 4.0%, Bermuda 2.0%, Brazil 2.0%, Czech Republic 2.0%, France 2.0%, Germany 2.0%, and others 14.0%.

Fund total operating expenses are pegged at 0.79% consisting of a 0.58% management fee and 0.21% acquired fund fees.  However, SDIV is not a fund-of-funds.  The acquired fund fees are based on estimates of the cumulative expenses charged by the business development companies (“BDCs”) in which SDIV invests and will vary over time.

Bottom Line:  This product appears to have been rushed to market before all the pieces were in place.  The marketing is either incomplete or inconsistent with the current product design point.  Until its dividend payment policies are clarified, it will be difficult to determine if SDIV can meet your objectives.  Hopefully, the summary page and fact sheet (pdf) will eventually inform investors what to expect.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Comments

9 Responses to “SDIV: Super Dividend or No Dividend?”

  1. DividendInvestor on June 18th, 2011 4:33 pm

    Your criticism is way off-base. The SEC prohibits ETFs from discussing future yields. If you add up the yields in the portfolio it is clear SDIV will yield about 9%, paid monthly. Global X knows all this, it is the SEC preventing them from telling investors.

  2. Ron Rowland on June 19th, 2011 3:21 pm

    I’m sorry, but you are misinformed. Perhaps you should study some of the new ETF offerings from State Street SPDRs, BlackRock iShares, and many/most others. The SEC does NOT prohibit:
    1) disclosing whether or not the fund will pay a dividend
    2) whether that dividend will be paid monthly or quarterly
    3) the yield of the underlying index
    4) other index related information

    Global X provided the list of 100 current holdings but did not provide the yield for each one. To make potential shareholders look them all up and perform the calculations is grossly inefficient.

  3. randy woolf on June 24th, 2011 7:44 am

    mr. rowland, you are wrong here. the SEC does not allow one to discuss FUTURE div. yield. as the fund is new, it has no track record. once that is established, they can state the yield. this is a new index, and there is not past to point to.

  4. Ron Rowland on June 24th, 2011 12:09 pm

    Randy,

    There are literally dozens of examples right here on my website of new ETFs where I am able to obtain a yield estimate. Here are some specific examples:
    http://investwithanedge.com/roof-a-new-small-cap-reit-etf-with-4-3-yield
    http://investwithanedge.com/leveraged-bdc-etn-with-14-6-yield-launched

    Please supply the SEC rule or regulation that does not allow this.

  5. randy woolf on June 24th, 2011 3:57 pm

    i stand corrected. thank you.

  6. Ron Rowland on July 1st, 2011 1:19 pm

    Global X announced July 1, 2011 that SDIV and CNPF would begin making monthly distributions.

    Link to press release: http://www.globalxfunds.com/NewsFile/income_dividends_finalweb.pdf

  7. Tim Sull on July 29th, 2011 12:47 pm

    Whoa.. I think it is closer to a 5.6% to 6.6% yield against a NAV of ~$24. We are going to know something more definite by next week the first week of August. The first distribution was paid against a partial month. Maybe “Dividend Investor” is failing to calculate in and subtract the expense ratios?

    For more diversification away from the US markets and this fund’s overweight US REITs and financials, I would add in some ABCS, CBPF & Maybe some GGT the CEF. While the public storage, warehousing and APT REIT sectors may stand up the office properties and Mall-retail property concepts look very vulnerable. MCQPF just floated out a C$75MM preferred isuance coincident with opening a new state of the art 20MW/1Sq Klick solar farm. I would compare the YTD charts of of BAC and MCQPF. US financials ???? very sketchy …

  8. Tim Sull on July 29th, 2011 12:50 pm

    Sorry for the typo CBPF should read CNPF. CNPF stood like Jackson and his Virginians against this 7/29 week ending Neon Swan events and daily market hammering.

  9. Talita on March 12th, 2012 8:36 pm

    One of your comments may be a key oabsrvetion that could help new investors like me understand more. Discussing the BLack Rock Dividend Achievers Trust, which currently has by far the highest yield of all the stocks examined, you wrote, “This fund is a prime example of the fact that higher management fees do not lead to superior investment performance after all.” To the new investor this looks like a contradiction, since you’re implying that Black Rock has inferior investment performance despite having the highest yield. Could you please explain how and why that is so? Does performance have more to do with the long-term likelihood of a stock increasing in value, and less to do with short-term yield?

Free Special Report

With interest rates near zero, how can you generate income with your nest egg? Our free special report shows you how. cover art
You will also receive our weekly market commentary and unique analysis based on our Edge Charts. Privacy

The Market Today

Subscribe to Commentary

Sign up HERE to get breaking news from Invest With An Edge & other updates.