I like to write about ETFs as I have the majority of my stock portfolio in ETFs I find them an easy and passive way for me to invest money and they don’t require much maintenance in terms of keeping track of stocks etc. In this article, we are looking at the Fidelity Global Quality Income UCITS ETF (FGQI) and my personal review related to this ETF and hereby will also share how I see it in terms of dividend investing.
An exchange-traded fund is represented as a stock in the stock market so by holding this specific stock you are holding a basket of stocks that correspond to an index (portfolio benchmark) that it is tracking.
This is more of an income ETF and its main goal is to track dividend stocks from around the world. At the time of writing is paying out a dividend yield of around 3.1% and recently got boosted by the current market conditions. However, this ETF is not focused on only providing income but as well growing it over time so a yield on its own won't tell us the full story therefore we need to look further into it.
The current benchmark/portfolio
The Index is designed to reflect the performance of stocks of large and mid-capitalization dividend-paying companies from developed countries that exhibit quality fundamental characteristics.
The ETF currently holds about 240 stocks which provide enough diversification for me. When it comes to geographical diversification, this ETF is mainly focused on US stocks (70%) followed by Japan (7%) and the United Kingdom (3%). In my opinion, it may be too focused on one country for some, however, a lot of these companies are large qualitative companies that operate internationally as well.
When looking at ETFs I find it crucial to have a look at the top 10 holdings to get a good feeling of the ETF and to see if it fits my profile and to see if these would be companies I would invest myself in individually. In this case, the top 10 holdings are representing almost 15% of the total holdings which gives us a decent overview.
The top 10 holdings:
Apple Inc. - 3.9%
Microsoft Corp. - 2.9%
Chevron Corp - 1.1%
Eli Lilly and Co -1.1%
The Home Depot Inc - 0.9%
Texas Pacific Land Corp - 0.9%
Pfizer Inc - 0.9%
Comcast Corp Class A - 0.9%
Merck & Co Inc - 0.9%
Procter & Gamble Co - 0.9%
It is also important and interesting to look at sector diversification as it provides a good idea of how this fund is allocated through various sectors.
The top 5 sectors:
Technology -18.8%
Healthcare - 14.3%
Financials - 14.2%
Consumer discretionary- 11.6%
Industrials - 11.3%
Conclusion:
Overall we can see that the holdings are quite diversified. When it comes to geographical diversification, the stocks are mostly based in the US, however, many of these companies have US exposure. When it comes to the individual holdings overall I like the exposure to these companies, however, they only represent 15% of the total holdings, so it definitely is worth having a further look. However, looking at the sector diversification gives a better overview of the total composition of the ETF. For my taste, overall there is a nice balance with a focus on technology and others are lacking such as consumer staples at 8%. I wouldn't mind seeing some sectors a bit lower to compensate, such as financials. However, this is a personal preference and I find it quite balanced with the main focus on technology.
Expense Ratio
When it comes to the expense ratio, the lower the better and I would generally like to see an expense ratio below 0.5%. Overall in Europe, I find the ETFs available a bit more expensive than what is available in the United States. In this case, the ETF has an expense ratio of 0.4% Which for me is a bit high but still manageable, however, personally would have loved to see it lower.
Performance
Since this is a more dividend-oriented ETF I want to look at both the capital appreciation, as well as the dividend growth over the last couple of years. Purely looking at capital appreciation over the last 5 years this fund has increased by over 40%. When it comes to dividend payout, In 2018 this fund was paying out 0.12 euro per share and this last year it paid out 0.19 euro. In the last few years, this means that we had an increase of 58% compared to 2018, which is about more than a 9.6% compound annual growth rate. Based on this information, I conclude that there was a nice appreciation in the stock price, however, the income increases were very compelling as well based on my estimates and calculation, This is partly due to the focus that a lot of US companies have on increasing dividends year over year and the focus on qualitative companies this ETF has.
Pros
I find that there is quite some nice diversification in this fund in terms of sector allocation and the number of stocks.
Secondly, I find that it has had nice growth in terms of capital appreciation over the past 5 years.
Thirdly, the dividend growth rate with a CAGR of around 9.6% with a nice starting yield of 3.1%, which is very good in my opinion
Fourthly, the top holdings are companies I know and would like to have as part of my portfolio overall and are definitely an asset.
Cons
I find personally that the sector diversification doesn’t fully fit my taste due to the lower exposure to for example consumer staples, and some may find that tech is overallocated.
Secondly, the top 10 holdings are only representing 15% of the fund which means it may be over-diversified in my opinion, however, it is still decent compared to some other ETFs.
Thirdly, the expense ratio could be lower since it only has a bit more than 200 stocks and mainly focuses on US companies.
Fourthly, as with all funds, it is not possible to choose the individual holdings so basically whether you like a stock or not in a fund, you are holding that stock indirectly, with this I want to say that you are buying the winners and losers and try to achieve a market return based on the index
Conclusion
I hold this ETF in my portfolio as I like to have a mix of growth and dividend growth. However, I don't solely hold this ETF due to its nature of this ETF. Basically, I have a strategic mix of ETFs and other stocks to make up my portfolio so that it fits my goals. I want to tap into my stocks or dividends in over 20 years or so. I think this ETF has a decent starting yield and compelling growth and fits very well in my portfolio, the only major downside may be the focus on US stocks and the expense ratio. However, US companies have a good track of overall growth and dividend growth and I am very pleased with the performance of this ETF overall when it comes to these two points.
Disclaimer: I am not a financial advisor, this blog is centered around my opinion and should not be viewed as legal, professional, or financial advice.
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