Moneyweb recently posted this insightful article on the Satrix DIVI Exchange Traded Fund (ETF) and it created some interesting discussion around dividend ETFs and the role they play in an investor portfolio.
As some background, a dividend-focused ETF aims to identify and track an index or basket of shares which have attractive dividend yields. Dividends (share of profits) are an important contributor to investment returns over the long-run and there are 2 listed options in the South African market:
The Satrix Divi ETF tracks the FTSE/JSE Dividend Plus index. The index consists of 30 companies that are expected to pay the best normal dividends over the forthcoming year. The ETF offers a 3.4% historical dividend yield and has a total expense ratio (TER) of 0.38%
Developed by Coreshares, this ETF tracks the S&P South Africa Dividend Aristocrats Index which is constructed and maintained by S&P Dow Jones Indices. The ETF has an historic yield of 2.9% and a TER of 0.58%.
The below graph compares the Satrix Divi (Orange) with the Coreshares offering (Blue) and shows that the Satrix offering is without question the superior performer over 12 months:
It could be argued that South African investors continue to be too inward-focused and ignore the opportunity to invest in high-quality global shares and ETFs. The below graph shows the iShares Core High-Dividend ETF (Orange) – which gives access to high dividend yielding US stocks – tracked over 5 years against both the Satrix Divi (Blue) and Divtrax* (Red). The iShares offering offers a 3.28% historic yield and a total expense ratio of 0.08%.
The iShares offering is a clear winner while the Satrix offering has been a laggard over the 5 year period. This again emphasises the case for South African investors to look at offshore investment opportunities for growing their wealth over the long-term. South African investors can access the iShares offering from as little as $1000
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*The Coreshares offering doesn’t have a complete 5 year trading history.
** All graphs sourced from Bloomberg