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 VanEck Morningstar Developed Markets Dividend Leaders UCITS ETF and my review related to this ETF.
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 4.4% 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 Developed Markets Large Cap Dividend Leaders Index™ is composed of the top 100 positions based on dividend yield which satisfy the screening criteria, including companies that display consistency and sustainability in dividend payment patterns. The weight of a share within the Index is determined based on the total dividend paid. The index has a 40% sector cap.
Overall, I think the general benchmark seems to be a good one, however, the emphasis on the total dividend paid as a way to determine the weight may not always be ideal.
The ETF currently holds about 100 stocks which provide enough diversification for me and sends a signal that these stocks are carefully selected. When it comes to geographical diversification, this ETF is mainly focused on US stocks (21%) followed by France (13%), and followed by Japan (12%). In my opinion, this ETF is well diversified and for me personally even under-allocated to the United States, however, this may be a good diversification play if an investor seeks lower allocation to the United States and more of a fair allocation around the world.
When looking at ETFs, I find it crucial to look at the top 10 holdings to get a good feeling of the ETF, see if it fits my profile, and see if these would be companies I would invest in individually. In this case, the top 10 holdings are representing almost 31% of the total holdings which gives us a decent overview.
The top 10 holdings:
Verizon Communications Inc. - 5%
TotalEnergies SE- 3.8%
Altria Group Inc. - 3.6%
BNP Paribas SA- 2.9%
IBM Corp - 2.9%
British American Tobacco Plc- 2.8%
Toronto-Dominion Bank - 2.6%
Allianz SE - 2.6%
Sanofi- 2.1%
Bank of Nova Scotia. - 2.1%
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:
Financials - 39%
Utilities - 10%
Energy - 10%
Consumer Staples - 8%
Materials - 7%
Conclusion:
When it comes to the individual holdings I have mixed feelings, on one hand, they don't seem too bad on the other hand I am missing others I would like to see instead in the top 10, it is also noticeable the exposure to for example financials in the top 10 so it is definitely 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 I find too much percentage of the fund is allocated to the financials, even though the fund has a cap of 40%, an allocation of 39% to a specific sector especially financials is a bit too high for my taste, however, the other sectors are allocated a bit more fairly.
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. Purely looking at capital appreciation over the last 5 years this fund has increased by over 31%. When it comes to dividend payout, In 2018 this fund was paying out 1.25 euros per share and this last year it paid out 1.56 euros. This is quite a decent increase for both metrics, and with such a high starting yield the question is, however, how will it perform in the future we have seen quite some good years and there is some over-reliance in the financial sector.
Pros
I find that there is a very good performance in terms of capital appreciation and dividend growth considering the starting yield of the dividend.
The benchmark is something that is very interesting to me personally and I would like to see how it develops in the future
Country diversification may be a plus for some since the allocation to the United States is lower compared to other ETFs.
Cons
Overallocation to the finance sector at 39% and would have liked to see some other companies as part of the top 10 holdings
Question mark on future performance since the index relies heavily on financials and how they are performing
Thirdly, the expense ratio could be lower since it only has 100 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 do not hold this ETF in my portfolio due to the overallocation to the financial sector itself. I already have another ETF that provides me with a similar profile albeit with a lower starting yield such as the Vanguard All-World High Dividend Yield UCITS ETF 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.
Consider donating to keep the blog going by clicking buy me a coffee ☕ button. Your support is highly appreciated.
Comments