ABCs Of Dividend ETFs: Guggenheim Debuts New Fund

by on June 9, 2011 | Updated June 22, 2011 | ETFs Mentioned:

Guggenheim rolled out its ABC High Dividend ETF (ABCS) this week, introducing a product with a focus on stocks exhibiting attractive dividend yields from three of the most important commodity producing economies. The new ETF will seek to replicate the BNY Mellon ABC Index, a benchmark that includes about 30 companies from Australia, Brazil, and Canada. The index is comprised of common stocks, as well as ADRs of companies from Brazil and Australia and locally-listed companies in Australia and Canada.

The ten stocks or ADRs from each country are included in the benchmark, resulting in a mix of securities that maintains a meaningful distribution yield. Brazil leads the way in terms of country exposure, accounting for about 47% of total assets. Australia and Canada account for 29% and 24% of holdings, respectively. The underlying index may offer exposure to smaller companies from the ABC bloc, tapping into a group of stocks that is often overlooked by broad-based international equity ETFs; as of April 30, the weighted average market cap for the related benchmark was less than $750 million. Less than 10% of the index goes towards large cap stocks, and small caps make up more than 55% of assets.

Not surprisingly, utilities and telecoms are among the heaviest sector allocations in the fund; those corners of the market have historically offered attractive and stable distributions to investors. Industrials, consumer stocks, and energy companies make up the next largest sector allocations [Ultimate Guide To Dividend ETFs].

ABCs Of ABC

ABCS is the first U.S.-listed ETF to focus exclusively on the economies of Australia, Brazil, and Canada, three markets that have very little in common as far as geography, culture, or even level of development. There are, however, some similarities in the composition of the three economies; each country relies heavily on the production of natural resources. Canada is home to some of the most abundant gold mines in the world, and maintains massive oil reserves as well. Australia is a big exporter of agricultural commodities (such as wheat), gold, natural gas and coal. And Brazil is one of the raw material powerhouses of the emerging market; the South American economy is a major exporter of everything from sugar and orange juice to soybeans and oil [Pro Members can see the Commodities Category Report here].

Many investors have gravitated towards resource-rich economies in recent years, based on the idea that the abundance of natural resources positions these markets to benefit from the insatiable appetite for raw materials of China and other rapidly-expanding markets (as well as the decline of the U.S. dollar). ABCS offers three of these major commodity-producing economies under one ticker (though commodity-intensive companies make up a small portion of the actual portfolio).

Dividend ETFs In Focus

With interest rates hovering near record lows and anxiety over the health of the U.S. economy beginning to spike, interest in dividend-paying equities has jumped recently. Stocks offering high dividend yields have the potential to enhance the current return delivered by a portfolio, and the stable cash flows may decrease volatility when broad equity markets encounter turbulence [Comparing Global Dividend ETFs].

Currently, there is no shortage of ETFs offering exposure to dividend strategies, as many investors have embraced the exchange-traded structure as a means of achieving low maintenance, cost-efficient access to this strategy. In addition to the suite of dividend-weighted ETFs from WisdomTree, a number of issuers offer products linked to indexes that screen the equity universe by dividend yield or consistency of past distributions. The lineup of dividend ETFs includes both domestic and international funds, though ABCS is the first to offer targeted exposure to the stock markets of Australia, Brazil, and Canada [see Dividend ETF Special: 25 High Yielding Equity Funds].

[For more on the new ABC ETF, see the ABCS fact sheet. For updates on all new ETFs, sign up for our free ETF newsletter]

Disclosure: No positions at time of writing.