FlexShares, the Portland, ME-based ETF issuing arm of Northern Trust, has launched three dividend products for investors seeking income-generating options in this low yield environment. The products may come handy for various investors since many companies are planning last minute dividends to reduce their own tax liabilities as going over the fiscal cliff looks almost certain now.
The FlexShares Quality Dividend Index Fund (QDF) replicates the performance of the Northern Trust Quality Dividend Index (the underlying index), the benchmark designed to provide exposure to a high-quality portfolio of long-only US equity securities with a targeted overall beta that is similar to the Northern Trust 1250 Index, or the parent index.
Companies included in the index are selected based on fundamental factors such as profitability, management reputation and cash-flow history, along with other factors such as expected dividend payout amount. The underlying index for this passively-managed fund is reconstituted every quarter.
The top 6 sector-allocations include financials, information technology, energy, consumer staples, consumer discretionary and healthcare. Industrials, utilities, telecommunication services and materials make up the remaining portion of the underlying index.
Flexshares Quality Dividend Defensive Index Fund (QDEF) follows the Northern Trust Quality Dividend Defensive Index (the underlying index), a benchmark that aims to give exposure to low beta securities. The targeted overall beta of the underlying index is generally between 0.5 to 1.0 times of that of the Northern Trust 1250 Index, or the parent index. QDEF offers investors with a US core stock market option and has been designed using a proprietary scoring model approach that determines a “quality factor” and an optimization process that seeks to maximize this factor.
FlexShares Quality Dividend Dynamic Index (QDYN) on the other hand offers more volatility than QDF and tracks the Northern Trust Quality Dividend Dynamic Index (the underlying index). The underlying index has a targeted overall beta that is generally 1.0 to 1.5 times of the Northern Trust 1250 Index, or the parent index. QDYN aims to maximize its current income with a more dynamic portfolio and are suitable for investors who can afford to take on greater risks, such as young adults, and do not depend on investment income to supplement regular earnings.
All the three funds have an expense ratio of 0.37 percent.
With the global slowdown underway, dividend products will have a place in the current market environment, especially if you can use them in a tax sheltered account to avoid the higher upcoming tax rates.
Still, the three ETFs above are new and have no history in price or payouts, so I will wait at least 6 months before reevaluating these candidates.
Disclosure: No holdingsContact Ulli