Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Question about UKDV and GBDV

Index tracking funds and ETFs
BrummieDave
Lemon Slice
Posts: 818
Joined: November 6th, 2016, 7:29 pm
Has thanked: 200 times
Been thanked: 378 times

Question about UKDV and GBDV

#149028

Postby BrummieDave » June 30th, 2018, 12:36 pm

State Street's own webpages for these two Dividend Aristocrat ETFs both show a Distribution Yield and an Index Dividend Yield.

I take the former to be the historical 12 month yield the ETF has delivered but would welcome confirmation of that.

I take the latter to be the the weighted yield of the stocks in the respective S&P index, but again would welcome confirmation of that.

If my two assumptions are correct, what I don't then understand is why the two yields are not closely correlated for the Global ETF GBDV with the Distribution Yield being 3.56 against the Index Dividend Yield of 4.68. For the UK ETF UKDV the two are much closer at 4.22% and 4.56% respectively.

I didn't think the two ETFs hold each of the shares in their respective indices equally weighted, so why the discrepancy, particularly in the global ETF GBDV?

Any experts out there...?

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Question about UKDV and GBDV

#149037

Postby mc2fool » June 30th, 2018, 1:12 pm

From the UKDV fact sheet (31 May 2018), https://www.ssga.com/doc/factsheets/FS1500_English.pdf

†Distribution Yield 4.23%
^Index Dividend Yield 3.90%

† This measures the 12 month historical dividend pay-out per share divided by the NAV.
^ This measures the weighted average of gross dividend yield of stocks, in the index.

Edit: and it says the same thing if you click the green question mark next to those items on https://uk.spdrs.com/en/professional/etf/spdr-sp-uk-dividend-aristocrats-ucits-etf-SPYG-GY

BrummieDave
Lemon Slice
Posts: 818
Joined: November 6th, 2016, 7:29 pm
Has thanked: 200 times
Been thanked: 378 times

Re: Question about UKDV and GBDV

#149044

Postby BrummieDave » June 30th, 2018, 1:34 pm

Yes, I know all that thank you, in fact the webpage you link to is where I got the two values of 4.22% and 4.56% from (https://uk.spdrs.com/en/professional/et ... tf-SPYG-GY)

And I know you can click on the green question marks for the definitions too.

My question/lack of knowledge is simply why is there a discrepancy between the two figures (is it akin to the tracking error on a passive index fund) and also does anyone know why the discrepancy is much greater for the global dividend aristocrat ETF than the UK dividend aristocrat ETF (4.68% Index Dividend Yield versus 3.56% Distribution Yield)? Does this imply the Global Divi Aristocrat ETF underperforms its Index by almost a quarter in yield terms?

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Question about UKDV and GBDV

#149049

Postby mc2fool » June 30th, 2018, 2:04 pm

BrummieDave wrote:Yes, I know all that thank you, in fact the webpage you link to is where I got the two values of 4.22% and 4.56% from (https://uk.spdrs.com/en/professional/et ... tf-SPYG-GY)

And I know you can click on the green question marks for the definitions too.

Well sorry but you said:
I take the former to be the historical 12 month yield the ETF has delivered but would welcome confirmation of that.

I take the latter to be the the weighted yield of the stocks in the respective S&P index, but again would welcome confirmation of that.

If my two assumptions are correct...

What I gave you was the authoritative confirmation of what you said were your "assumptions" -- that you now say of which "I know all that"....

Well, you're welcome :(

Lootman
The full Lemon
Posts: 18681
Joined: November 4th, 2016, 3:58 pm
Has thanked: 628 times
Been thanked: 6563 times

Re: Question about UKDV and GBDV

#149051

Postby Lootman » June 30th, 2018, 2:07 pm

BrummieDave wrote:My question/lack of knowledge is simply why is there a discrepancy between the two figures (is it akin to the tracking error on a passive index fund) and also does anyone know why the discrepancy is much greater for the global dividend aristocrat ETF than the UK dividend aristocrat ETF (4.68% Index Dividend Yield versus 3.56% Distribution Yield)? Does this imply the Global Divi Aristocrat ETF underperforms its Index by almost a quarter in yield terms?

The focus of these ETFs is not the index itself, but rather those shares within that index that historically have exhibited greater safety, sustainability and growth of dividends.

They are therefore not cap-weighted index funds at all, but rather rules-based funds. Some call that smart beta or even "active" ETFs

As such I would not expect that either their yield nor their return to match the underlying benchmark index. In the case of yield it is probably lower because safe and growing dividends are highly rated by the market, depressing their current yield. In a sense these are not high yield funds or income funds, but rather funds that use dividend safety and growth as a driver and proxy for growth.

In the case of returns they may be higher or lower, but if it was the same that would merely be a coincidence.

The foreign ETF may have a bigger discrepancy on yield because of non-reclaimable foreign withholding taxes on dividends.

BrummieDave
Lemon Slice
Posts: 818
Joined: November 6th, 2016, 7:29 pm
Has thanked: 200 times
Been thanked: 378 times

Re: Question about UKDV and GBDV

#149232

Postby BrummieDave » July 1st, 2018, 11:05 am

Sorry mc2fool I hadn't meant to cause offence or seem unappreciative of your reply. I started my original post with the words "State Street's own webpages for these two ETFs..." and had read them and other associated info I could readily find, hence already knowing what you replied with. Perhaps I was looking for an 'explanation' and not the 'confirmation' I initially asked for. We all come on this board to ask, reply, and learn, and I know that as a community this will only work if we feel uninhibited to ask, reply and debate with varying levels of knowledge, understanding and expertise. So please accept my apols if my reply seemed curt in any way, which clearly it did. :oops:

Lootman, thanks for the explanation which is very useful indeed. I hold GBDV but was doing so without seemingly fully understanding its mandate. I'm better informed now and can act accordingly. Without going into unnecessary details, this has saved me some capital to reinvest elsewhere. :D

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Question about UKDV and GBDV

#149259

Postby mc2fool » July 1st, 2018, 12:26 pm

BrummieDave wrote:So please accept my apols if my reply seemed curt in any way, which clearly it did. :oops:

Accepted.

Lootman, thanks for the explanation which is very useful indeed. I hold GBDV but was doing so without seemingly fully understanding its mandate. I'm better informed now and can act accordingly. Without going into unnecessary details, this has saved me some capital to reinvest elsewhere. :D

I don't believe Lootman's explanation is correct, as when he says "The focus of these ETFs is not the index itself, but rather those shares within that index that... " he appears to be assuming that "index" in this case is referring to the whole-market (or, at least, biggest cap part thereof) index, e.g. S&P 500, FTSE 100, etc, and so saying it's not surprising that an ETF that invests in a subset of those will have a different yield.

However, the index the State Street info is referring to is the S&P UK High Yield Dividend Aristocrats Index for the SPDR S&P UK Dividend Aristocrats ETF (UKDV), and the S&P Global Dividend Aristocrats Index for the SPDR S&P Global Dividend Aristocrats ETF (GBDV), and these are explicitly listed on their webpages as the benchmarks for the ETFs.

So, your question still stands: what explains the difference in yield between the SPDR S&P UK Dividend Aristocrats ETF and the S&P UK High Yield Dividend Aristocrats Index? And ditto for the global one.

I don't know the answer, but I'd suggest you look into where charges are taken from; if they are taken from income rather than capital then that could explain the difference, or at least part of it.

Also look into whether the two figures are contemporaneous; on the one sentence definitions we're spotted so far, the Distribution Yield is historical (pay-out over the last 12 months) whereas the Index Dividend Yield appears to be the one right now, and those could be quite different if there have been changes in the constituents.

E.g. to take an extreme example to illustrate the point, if the index (and ETF) contained just one company, ABC plc, up until a month ago when ABC dropped out and was replaced by XYZ plc, then the Distribution Yield would reflect the dividends paid out (passed on) from ABC in the last year but the Index Dividend Yield would now be showing that of XYZ.

I don't know how much each of those goes to explaining the difference, but to look into it I'd suggest starting with the Prospectus and then moving on to the various Supplements and Annual Reports.

Do let us know what you find. :D

BrummieDave
Lemon Slice
Posts: 818
Joined: November 6th, 2016, 7:29 pm
Has thanked: 200 times
Been thanked: 378 times

Re: Question about UKDV and GBDV

#149272

Postby BrummieDave » July 1st, 2018, 1:04 pm

Yes, you're correct.

Focusing on the global ETF (GBDV) as this is where the discrepancy between yields is greatest (and where my money is currently invested), State Street's webpage shows the benchmark as being the S&P Global Dividend Aristocrats Index, and that 'the weighted average of gross dividend Yield of stocks in the index' (not the benchmark incidentally but I think we can we assume that's what it's referring to) as 4.68% against the ETF's historical 12 month yield of 3.56%.

So assuming 'the index' in the definition of the 'Index dividend yield' is the 'benchmark' ie S&P Global Dividend Aristocrats Index and not the S&P 500 (which it can't be, or that would mean the S&P 500 had a higher yield than the Aristocrats Index), my question does indeed still stand.

Why is the benchmark index yielding almost 25% higher than the ETF.

Looking at the constituent holdings by stock and by sector, they are very closely correlated, and probably mirrored:

The 'Holdings' tab here shows the ETF holdings and sector analysis https://uk.spdrs.com/en/professional/et ... TF-ZPRG-GY

The 'Constituents' and 'Sector Breakdown' tabs here show the same for the Index https://us.spindices.com/indices/strate ... ristocrats

The prospectus states "Replication Strategy – this strategy seeks to physically hold all or close to all of the securities of the particular Index, with the approximate weightings as in that Index. Essentially, the portfolio of the Fund would be a near mirror-image of the particular Index. • Optimisation Strategy – this strategy seeks to build a representative portfolio that matches the risk and return characteristics of the applicable Index..."

So if the ETF basically mirrors the index and seeks to replicate its performance, why the discrepancy in yields?

Also note (and beware) HL's webpage for the ETF shows one yield figure, and it's 4.56% which I can definitively confirm is not what you get! http://www.hl.co.uk/shares/shares-searc ... l-dividend

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Question about UKDV and GBDV

#149300

Postby mc2fool » July 1st, 2018, 4:29 pm

BrummieDave wrote:So if the ETF basically mirrors the index and seeks to replicate its performance, why the discrepancy in yields?

The ETF currently mirrors the index now, but the yield you received depends on the constituents in the last 12 months. Go back to my ABC plc being replaced by XYZ plc example for one possible reason for the discrepancy (or part of).

Also the index yield is "the weighted average of gross dividend yield of stocks, in the index". Two things: firstly "gross", is that reduced by withholding taxes? Secondly, that's independent of any currency, however the distributions are in £s and so the distribution yield could have been affected by changes in exchange rates.

And, I see the TER is 0.45%. If that is taken out of income then that reduces the discrepancy to 4.68-0.45= 4.23% vs 3.56%.

BrummieDave
Lemon Slice
Posts: 818
Joined: November 6th, 2016, 7:29 pm
Has thanked: 200 times
Been thanked: 378 times

Re: Question about UKDV and GBDV

#149378

Postby BrummieDave » July 2nd, 2018, 8:37 am

Yes, I can see that if you add the TER to other factors, you could conceivably bridge the gap, and perhaps that's the answer. But we're doing this by a series of assumptions and 'ifs'. I am therefore hoping that somewhere out there is an ETF nut who will know the answer and come along with the explanation?

In the meantime, I'm very conscious of one of the fundamental principles of investing, that if you don't understand it, don't buy it. this was my first 'toe in the water', so perhaps I should quietly exit, or at the very least, not buy any more ETFs until I know more.

mc2fool
Lemon Half
Posts: 7812
Joined: November 4th, 2016, 11:24 am
Has thanked: 7 times
Been thanked: 3017 times

Re: Question about UKDV and GBDV

#149388

Postby mc2fool » July 2nd, 2018, 9:02 am

BrummieDave wrote:But we're doing this by a series of assumptions and 'ifs'.

No, I'm making a series of possible explanations as starters for you to investigate; after all, you're the one with skin in the game :D

OhNoNotimAgain
Lemon Slice
Posts: 767
Joined: November 4th, 2016, 11:51 am
Has thanked: 71 times
Been thanked: 147 times

Re: Question about UKDV and GBDV

#149537

Postby OhNoNotimAgain » July 2nd, 2018, 5:32 pm

Without knowing the details of those funds the discrepancy is most likely due to the difference between the index and how well the fund replicates it. In some cases the tracking error might be quite small but the replication could still be significant.

Even so, I would not expect there to be much difference in yield between the two.

Tracking error captures the Total Return so over time so it includes dividends and any differences will eventually just fade away as dividends become more important over time.

Quite frankly I can't see the point in calculating a yield for an index on its own if the fund that tracks it has a small tracking error.

BrummieDave
Lemon Slice
Posts: 818
Joined: November 6th, 2016, 7:29 pm
Has thanked: 200 times
Been thanked: 378 times

Re: Question about UKDV and GBDV

#149543

Postby BrummieDave » July 2nd, 2018, 5:59 pm

But it isn't a small difference (tracking error or not), hence the question.

OhNoNotimAgain
Lemon Slice
Posts: 767
Joined: November 4th, 2016, 11:51 am
Has thanked: 71 times
Been thanked: 147 times

Re: Question about UKDV and GBDV

#149647

Postby OhNoNotimAgain » July 3rd, 2018, 9:16 am

BrummieDave wrote:But it isn't a small difference (tracking error or not), hence the question.


You need to contact the manager directly, and good luck with that.

Is it not possible to make your own calculation for the funds at least based on the reported distributions and the current price?


Return to “Passive Investing”

Who is online

Users browsing this forum: No registered users and 9 guests