Samsung Asset Management is launching an actively managed exchange-traded fund that invests in high-quality U.S. dividend stocks while adjusting its holdings as corporate growth prospects and earnings shift.
The firm said on the 19th that it will list the KODEX U.S. Dividend Dow Jones Active ETF on the 20th. The fund uses the Dow Jones U.S. Dividend index as its benchmark but adds qualitative analysis by portfolio managers, and it plans to hold about 70 core stocks at the time of listing. Distributions will be paid at the end of each month.
The product adds flexibility to the index's method of screening dividend stocks. The Dow Jones U.S. Dividend index selects about 100 high-quality U.S. companies based on criteria including 10 consecutive years of dividend payments, dividend yield, dividend growth and return on equity. A drawback, however, is that the index reshuffles its components only once a year, making it difficult to reflect changes in corporate earnings or shareholder return policies in a timely manner.
The KODEX U.S. Dividend Dow Jones Active ETF therefore analyzes companies' earnings estimates and structural growth potential to adjust its holdings and weightings as needed. Companies with room for further growth are retained even after their share prices rise, while weightings in companies with deteriorating fundamentals are cut before the regular reshuffle. The aim is to invest in companies that pay steady dividends while still capturing growth opportunities and responding quickly to the risk of deterioration.
Because dividend yields move inversely to share prices, growth prospects must also be examined, the firm said. A high-quality company whose dividend yield has fallen because its stock price rose may continue to climb even after being dropped from the index. Conversely, a company whose shares have plunged on weak earnings can present a "dividend trap," in which a higher yield alone makes the stock look more attractive.
Han Dong-hoon, a manager at Samsung Asset Management, said: "If the Dow Jones U.S. Dividend index is a well-made map that is updated once a year, this product adds smart navigation on top of that map. Because it adds flexibility on a stable foundation, it will be a solid alternative for investors who want both the stability and the flexibility of dividend investing."