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 iShares MSCI World Quality Dividend ESG UCITS ETF (WQDV) 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 2.9% and recently got boosted by the current market conditions. However, this ETF sounds like it is not only 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 Fund aims to achieve a return on your investment, through a combination of capital growth and income, which reflects the return of the MSCI World High Dividend Yield ESG Reduced Carbon Target Select Index.
One thing to note before proceeding the fund changed its benchmark on the 1st of June of 2022 from MSCI World High Dividend Yield Index to MSCI World High Dividend Yield ESG Reduced Carbon Target Select Index, which means past performance may not necessarily reflect the future one
Overall, I think the general benchmark seems to be a good one taking into account the future.
The ETF currently holds about 165 stocks which provides enough diversification for me. When it comes to geographical diversification, this ETF is mainly focused on US stocks (48%) followed by the United Kingdom (10%) and France (8%). 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 and the United States is at less than half of the allocation.
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 25% of the total holdings which gives us a decent overview.
The top 10 holdings:
Broadcom Inc. - 2.6%
Merck & Co Inc - 2.6%
Microsoft Corp. - 2.6%
Abbvie Inc. - 2.5%
Coca-Cola co. - 2.4%
Pfizer Inc - 2.4%
Novartis AG. - 2.4%
Verizon Inc. - 2.4%
Cisco Systems Inc - 2.4%
Apple inc. - 2.4%
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 - 25%
Healthcare - 19%
Financials - 12%
Consumer Staples - 9%
Industrials - 9%
Conclusion:
When it comes to the individual holdings overall I like the exposure to these companies, however, they only represent 25% 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 9%. I wouldn't mind seeing some sectors a bit lower to compensate, such as Healthcare. 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 are a bit more expensive than what is available in the United States. In this case, the ETF has an expense ratio of 0.38%, 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. This ETF was funded in 2018 and had a benchmark change in June, therefore it is difficult to look at the past performance, as things are likely to change. Purely looking at capital appreciation over the last years this fund has increased by over 6%. When it comes to dividend payout, In 2018 this fund was paying out 0.14 euro per share and this last year it paid out 0.16 euro. This is not a huge increase overall for both metrics, the question is however how will it perform based on the new benchmark?
Pros
I find that there is quite some nice diversification in this fund in terms of sector allocation and the number of stocks.
The benchmark is something that is very interesting to me personally since ESG is something very important in the future.
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
Past performance hasn't been great for my metrics
Many top companies and holdings are already part of other ETFs that don't necessarily focus on ESG.
Thirdly, the expense ratio could be lower since it only has 165 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 currently hold this ETF in my portfolio as it didn't prove itself performance-wise historically speaking. I already have another ETF that provides me with similar holdings and benchmarks such as Fidelity Global Quality Income UCITS ETF (FGQI) However, I am keeping this ETF on my watchlist for the future, as I would like to see how this benchmark will perform to assess whether it would make sense to start a position.
Basically, I have a strategic mix of ETFs and 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.
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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