ETFS Trade idea – The Aussie yield ETF that challenges active managers
ETFS S&P/ASX 300 High Yield Plus ETF (ZYAU)
In the wake of S&P Dow Jones Indices recently published SPIVA® report, this week we have taken a look at how our ETFs have fared against active managers over time.
This note highlights ZYAU, which has produced strong excess returns since inception and outperformed many well-known active managers.
Investors looking for cost-effective excess returns from domestic equities should consider evaluating ZYAU.
In this week’s ETFS Trade idea, we look at the results of the SPIVA® Australia Scorecard released by S&P Dow Jones Indices last month and compare the performance of ZYAU to a collection of well-known active funds focused on Australian equity-income.
SPVIA® Australia Scorecard 2017
S&P Dow Jones Indices have been publishing SPIVA® Scorecards for major markets since 2002 and have become leading contributors to the active versus passive debate worldwide. The SPIVA® Scorecards track the performance of active fund managers in each market against benchmark indices across a variety of categories and across multiple time horizons.
Looking specifically at Australian large-cap equity funds, as at the end of 2017 59% of funds underperformed the S&P/ASX 200 Index. Over 3, 5 and 15 year periods, respectively, 67%, 63% and 77% of funds underperformed the national benchmark. An equally-weighted portfolio of active funds would have underperformed the benchmark over 1, 3, 5, 10 and 15 years. Similarly, in the mid and small-cap categories, 74% and 75% of funds underperformed the S&P/ASX Mid-Small Index over 1 and 3 years.
How does ZYAU compare to active funds?
ZYAU sits in-between a traditional active fund and a purely passive index tracker in the area commonly termed ‘smart-beta’ or ‘enhanced-alpha’. Smart-beta funds passively track an index, but the index they track has features that differentiate it from a standard market capitalisation-weighted index and aim to outperform a standard index in much the same way that active funds do.
In the case of ZYAU, it tracks the S&P/ASX 300 Shareholder Yield Index, which aims to outperform the S&P/ASX 300 benchmark by selecting a sub-set of constituents based on ‘shareholder yield’ – a combined measure of dividend yield and buy-back yield.
Because ZYAU’s investment strategy is pre-defined it has several potential advantages over active funds:
its strategy is consistent, published and available for investors to evaluate and scrutinise
its holdings are published in the public domain on a daily basis
because it trades on exchange, investors can trade intra-day, unlike with many active funds
because the fund does not require a team of fund managers to continually evaluate its holdings, it can charge management fees more in-line with passive index trackers.
ZYAU’s stocks selections tend to be more “active” than many active funds, with its Active Share, or non-overlapping weight, versus the S&P/ASX 200 currently at 80.5%. This means that ZYAU can better compliment a core index holding in a portfolio.
Table 2, below, shows comparative performances and headline management fees of ZYAU against a collection of well-known active funds that focus on Australian equity and equity income.
Firstly, to note, ZYAU’s management fee compares favourably to the active funds, as would be expected. ZYAU charges a fee of 0.35% p.a., which is below all of the active funds profiled and significantly below the average active MER of 0.83% p.a.
Consistent Strong Performance
With regards to performance, since its inception in June 2015, ZYAU has generated 2.19% p.a. excess return over the S&P/ASX 200, which puts it ahead of 16 of the 17 active funds. Only Bennelong Australian Equities Fund has outperformed, due to a very strong start to 2018.
In the calendar year 2017, ZYAU outperformed the S&P/ASX 200 by 0.63% and beat 14 of its 17 active peers. In 2016, ZYAU outperformed 16 of the 17 active funds profiled and produced 5.42% of excess return over the benchmark index.
Since inception, ZYAU has delivered strong performance at a fraction of the cost of many of its active peers and should be, therefore, considered by investors looking for cost-effective excess returns.
How ZYAU invests
ETFS S&P/ASX 300 High Yield Plus ETF (ZYAU) is well positioned for investors for the following reasons:
ZYAU captures the performance of a selection of 40 high yielding Australian shares selected from the S&P/ASX 300 Index and rebalanced twice annually.
ZYAU initially screens stocks based on liquidity, free cash flow to equity and dividend growth rates. This excludes stocks that are illiquid, are returning more cash to shareholders than they are earning, or have recently cut their dividend payouts.
ZYAU then selects the 40 stocks with the highest shareholder yields for inclusion and weights them according to a mix of shareholder yield and market capitalisation.
ZYAU has an MER of 0.35% p.a.
ZYAU has a Recommended rating by Lonsec.