Smartshares DIV - new NZX passive dividend fund

[Lizard]

I just wrote a post on the new Smartshares DIV (NZX Dividend stocks) but lost the lot as took too long writing! So abbreviated version below:

I was looking at these for a family member who has a lot of high quality bonds reaching maturity and needs income options. Not suggesting it is always appropriate to swap high quality bonds for equities! But may suit some people given lack of replacement bonds and that diversification may offset some of the increase in risk??

Based on the new S&P/NZX 50 High Dividend index. Index is new, but the factsheet from S&P shows the following historical returns:
7290

This is a passive fund taking the top 25 of the top 50 NZ index. There's also a recent Aussie equivalent launched December (ASD). Investment Statement http://smartshares.co.nz/images/documents/Investment-Statement.pdf . As I read it:



Fees are currently 0.54% pa of asset value, calculated daily.
The manager can lend up to half the fund value/half of an individual stock out for shorting and the lending premium is split 50:50 between the manager and unit holders.
Distributions are intended to be made quarterly, based on accumulated dividends and lending premium, but these will typically be re-invested unless holders elect otherwise.
Can be purchased either on market or directly from the manager (application fee, min $30 applies).
Need to be sold on market (unless you're a big investor who wants to swap for a basked of underlying equities first).
Units allotted end of month on funds received prior to 20th of month. Manager keeps any interest from intervening period.


Note that ASD was not able to collect sufficient dividends in the first quarter to pay a distribution and it could be that the same happens here - although this fund has started at a better time to pick up the initial dividends. This should be temporary (if it occurs at all) as I would guess it was largely a problem with ASD because initial holdings are not high and ex-dates will have occurred before positions are established, so a bit of a delay in getting cash flow through.

[blackcap]

I just wrote a post on the new Smartshares DIV (NZX Dividend stocks) but lost the lot as took too long writing! So abbreviated version below:

I was looking at these for a family member who has a lot of high quality bonds reaching maturity and needs income options. Not suggesting it is always appropriate to swap high quality bonds for equities! But may suit some people given lack of replacement bonds and that diversification may offset some of the increase in risk??

Based on the new S&P/NZX 50 High Dividend index. Index is new, but the factsheet from S&P shows the following historical returns:
7290

This is a passive fund taking the top 25 of the top 50 NZ index. There's also a recent Aussie equivalent launched December (ASD). Investment Statement http://smartshares.co.nz/images/documents/Investment-Statement.pdf . As I read it:



Fees are currently 0.54% pa of asset value, calculated daily.
The manager can lend up to half the fund value/half of an individual stock out for shorting and the lending premium is split 50:50 between the manager and unit holders.
Distributions are intended to be made quarterly, based on accumulated dividends and lending premium, but these will typically be re-invested unless holders elect otherwise.
Can be purchased either on market or directly from the manager (application fee, min $30 applies).
Need to be sold on market (unless you're a big investor who wants to swap for a basked of underlying equities first).
Units allotted end of month on funds received prior to 20th of month. Manager keeps any interest from intervening period.


Note that ASD was not able to collect sufficient dividends in the first quarter to pay a distribution and it could be that the same happens here - although this fund has started at a better time to pick up the initial dividends. This should be temporary (if it occurs at all) as I would guess it was largely a problem with ASD because initial holdings are not high and ex-dates will have occurred before positions are established, so a bit of a delay in getting cash flow through.

If anything the NZ one may be worth getting into but if you are looking at the Aussie one, Vanguard offer a high yeild aussie fund Code VHY, where the MER is only .25% so I cannot see why you would choose the NZX equivalent. Except that the Vanguard one may be more difficult to drip feed funds into. But for NZ, the .54% MER is not too bad and there are no other equivalent passive funds being offered by other institutions that focus sole on NZ shares.

link shows link of ASX listed ETF products and associated information pertaining to each
http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm

[Harvey Specter]

Interesting. Why would they default to re-invest rather than distribute on a dividend fund. Makes sense from their perspective but from investors?

[777]

Interesting. Why would they default to re-invest rather than distribute on a dividend fund. Makes sense from their perspective but from investors?

I think all their funds default to reinvestment.

[Snoopy]

I was looking at these for a family member who has a lot of high quality bonds reaching maturity and needs income options. Not suggesting it is always appropriate to swap high quality bonds for equities! But may suit some people given lack of replacement bonds and that diversification may offset some of the increase in risk??


I know that conventional theory suggests that as one moves into retirement, one should reduce the shares section of your investment portfolio and put more into bonds. But these are not conventional times. Is it right to suggest that an older person reduces their standard of living by putting money into corporate bonds when the after tax yield is often less than if they held shares in those same companies? I would say no. To top the risk off, with bond interest rates low there is a significant risk of capital loss if you hold bonds which is not offset by a corresponding chance of capital gain.

Consequently, an older person putting capital into a high yielding NZ dividend share fund, to diversify individual share risk, makes an incredible amount of sense to me.

SNOOPY

[Harvey Specter]

You talk a lot of sense for a dog. Completely agree. though there is obviously still a place for debt/term deposits for the funds you expect to use in the next 2 years or so (if dividends are enough and you are also living of capital). I disagree with this though:
To top the risk off, with bond interest rates low there is a significant risk of capital loss if you hold bonds which is not offset by a corresponding chance of capital gain. as you are likely to hold to maturity, not trade it so no capital loss will be suffered, just a missed opportunity.

[Snoopy]

You talk a lot of sense for a dog. Completely agree. though there is obviously still a place for debt/term deposits for the funds you expect to use in the next 2 years or so (if dividends are enough and you are also living of capital). I disagree with this though:

Snoopy wrote
"To top the risk off, with bond interest rates low there is a significant risk of capital loss if you hold bonds which is not offset by a corresponding chance of capital gain."

as you are likely to hold to maturity, not trade it so no capital loss will be suffered, just a missed opportunity.

Harvey, some of these corporate bonds have long maturity dates. To someone like you a couple of percentage points on a bond missed is a missed opportunity. To a retiree, that difference might mean not taking the wife out to dinner once a month to give her a break from the stove. Or it might mean not being able to fly over and see the grand kids for the holidays.

SNOOPY

[OldRider]

I have looked at Westpac where the dividend yield has been consistently higher than term deposit rates for some time, and a year or so ago switched some funds, so far well ahead.
As well have shifted some bond allocation into LIC as is being posted about above, happy with this choice as well

[Harvey Specter]

Harvey, some of these corporate bonds have long maturity dates. To someone like you a couple of percentage points on a bond missed is a missed opportunity. To a retiree, that difference might mean not taking the wife out to dinner once a month to give her a break from the stove. Or it might mean not being able to fly over and see the grand kids for the holidays.but they would have known the yield when they went into it - they would already have accepted their baked bean fate, but if they sell, they lose the capital as well.

[Snoopy]

but they would have known the yield when they went into it - they would already have accepted their baked bean fate, but if they sell, they lose the capital as well.

Going back some 20 years now. I knew one older couple who retired assuming they would get 8% on their then Post Office Savings Bank investment forever into the future. That sounds nutty now. But these kind of - bank - interest rates were common in those days. The only way to get an 8% fixed interest now is to buy some relatively high risk corporate bond.

Buying into a 'respected' corporate bond that pays 6% is only a good up front open choice because you would be lucky to get 4% at the bank. If interest rates do rise, it may pay our retiree to take their capital bond loss, and reinvest at a higher rate. Especially as breaking into bank term deposits before maturity has become much harder. Taking a capital loss as a retiree is always bitter, but it could yet prove to be the right thing to do in the future. Even so I suspect most retirees would hang on until maturity, despite the curbs in lifestyle that decision might mean.

SNOOPY

[Lizard]

If anything the NZ one may be worth getting into but if you are looking at the Aussie one, Vanguard offer a high yeild aussie fund Code VHY, where the MER is only .25% so I cannot see why you would choose the NZX equivalent. Except that the Vanguard one may be more difficult to drip feed funds into. But for NZ, the .54% MER is not too bad and there are no other equivalent passive funds being offered by other institutions that focus sole on NZ shares.

link shows link of ASX listed ETF products and associated information pertaining to each
http://www.asx.com.au/products/etf/managed-funds-etp-product-list.htm

Three reasons I can think of that might apply to some:
1. PIE structured so you don't have to worry about FIF regime and/or may get some reduction in tax.
2. Can purchase in NZ dollars (although smartshares are still unhedged), so may seem simpler/safer to some.
3. Regular purchase plan (as you point out) - suitable for smaller holders building a portfolio (although divs less likely to be a priority in this case).

[arcticblue]

What are people's thoughts on the liquidity of this fund as it's just started? Any ideas on how long it will take to build up enough funds before it's possible to buy/sell easily 10k+ shares/units?
And the details seem to be lacking on the smartshares website or I just haven't seen it, but it's a little unclear on what the top 25 dividend shares are, I couldn't find any info on how these were selected and how they would be rebalanced and how often.

I'm trying to compare between their other fund covering the NZX50 and this one. Any thoughts?

[Harvey Specter]

They have appointed a market maker to ensure liquidity: https://nzx.com/companies/NZX/announcements/258646

Not sure how that works but trades should always be 'close' to NTA going forward.

Re composition, I don't understand how an index fund can only follow half the index. I assume it picks the 25 biggest or most liquid? If it's not on their website, send them an email and ask for the current composition.

[newtrader]

They have appointed a market maker to ensure liquidity: https://nzx.com/companies/NZX/announcements/258646

Not sure how that works but trades should always be 'close' to NTA going forward.

Re composition, I don't understand how an index fund can only follow half the index. I assume it picks the 25 biggest or most liquid? If it's not on their website, send them an email and ask for the current composition.

There is already a market maker in place (I assume it is the NZX themselves). You can tell by looking at the depth - there is always a 100k/150k/200k bid and offer. The spread is currently 0.8% (Based on sampling FNZ and OZY) so I assume this gap will close when the new market marker (Craigs) takes over.

The spread for larger overseas EFT is much lower due to high liquidity, sometimes as low as 0.1%. So it would be great is we can see trading closer to the NTA.

[Harvey Specter]

There is already a market maker in place (I assume it is the NZX themselves). That announcement was from Dec and said it was already underway so what you are seeing is Craigs. Looks like a 0.8% spread is the best we will get.

[newtrader]

Ah, that's unfortunate. Not being able to buy in or cash out at a value close to NTA is definitely making me think twice about investing in these low cap, illiquid, high-fee ETFs.

Might consider the ETFS on the ASX instead even though they have their own challenges...

[blackcap]

That announcement was from Dec and said it was already underway so what you are seeing is Craigs. Looks like a 0.8% spread is the best we will get.

Correct. Not great compared to overseas funds (Im sure Craigs is making some on this) but a lot better than not having one at all.

[Lizard]

What are people's thoughts on the liquidity of this fund as it's just started? Any ideas on how long it will take to build up enough funds before it's possible to buy/sell easily 10k+ shares/units?
And the details seem to be lacking on the smartshares website or I just haven't seen it, but it's a little unclear on what the top 25 dividend shares are, I couldn't find any info on how these were selected and how they would be rebalanced and how often.

I'm trying to compare between their other fund covering the NZX50 and this one. Any thoughts?

More on the index it tracks here: https://us.spindices.com/search/?query=SPN5HDP&Search=GO&Search=GO
The fact sheet will tell you the methodology, although not the actual contents.

[arcticblue]

Thanks for the links Lizard, that's much more helpful than the smartshares website.

[Harvey Specter]

More on the index it tracks here: https://us.spindices.com/search/?query=SPN5HDP&Search=GO&Search=GO
The fact sheet will tell you the methodology, although not the actual contents.
Why is is so hard for them to give the info people want. Why not the list of shares and their %! I wonder how much the brokerage firms have to pay for that info.

[arcticblue]

I got a response from SmartShares. Below is the current companies and weightings. It's not the easiest to read as I just copied it from the csv file I got.

Ticker Weighting Company Name

AIR 0.037394057 AIR NEW ZEALAND LTD

ANZ 0.019203614 ANZ BANKING GROUP

ARG 0.026268636 ARGOSY PROPERTY LIMIT

CEN 0.052220577 CONTACT ENERGY LIMITE

EBO 0.019636756 EBOS GROUP LIMITED

FBU 0.10070673 FLETCHER BUILDING LTD

FPH 0.04706475 FISHER & PAYKEL HEALT

FRE 0.021603757 FREIGHTWAYS LIMITED

GMT 0.032265379 GOODMAN PROPERTY TRUS

GNE 0.018921734 GENESIS ENERGY LTD

IFT 0.041622878 INFRATIL LIMITED

KMD 0.009495754 KATHMANDU HOLDINGS LT

KPG 0.02749218 KIWI PROPERTY GROUP L

MELCA 0.08571391 MERIDIAN ENERGY LTD O

MFT 0.016966355 MAINFREIGHT LIMITED

MRP 0.051592822 MIGHTY RIVER POWER LT

NPX 0.030421576 NUPLEX INDUSTRIES LIM

PCT 0.021708046 PRECINCT PROPERTIES N

SKC 0.064865822 SKYCITY ENTERTAINMENT

SKT 0.072751225 SKY NETWORK TELEVISIO

SPK 0.088868611 SPARK NEW ZEALAND LIM

TME 0.040137188 TRADE ME GROUP LIMITE

TWR 0.011065725 TOWER LIMITED

WBC 0.027295656 WESTPAC BANKING CORPO

ZEL 0.034716259 Z ENERGY LTD

[blackcap]

I got a response from SmartShares. Below is the current companies and weightings. It's not the easiest to read as I just copied it from the csv file I got.

Ticker Weighting Company Name

AIR 0.037394057 AIR NEW ZEALAND LTD

ANZ 0.019203614 ANZ BANKING GROUP

ARG 0.026268636 ARGOSY PROPERTY LIMIT

CEN 0.052220577 CONTACT ENERGY LIMITE

EBO 0.019636756 EBOS GROUP LIMITED

FBU 0.10070673 FLETCHER BUILDING LTD

FPH 0.04706475 FISHER & PAYKEL HEALT

FRE 0.021603757 FREIGHTWAYS LIMITED

GMT 0.032265379 GOODMAN PROPERTY TRUS

GNE 0.018921734 GENESIS ENERGY LTD

IFT 0.041622878 INFRATIL LIMITED

KMD 0.009495754 KATHMANDU HOLDINGS LT

KPG 0.02749218 KIWI PROPERTY GROUP L

MELCA 0.08571391 MERIDIAN ENERGY LTD O

MFT 0.016966355 MAINFREIGHT LIMITED

MRP 0.051592822 MIGHTY RIVER POWER LT

NPX 0.030421576 NUPLEX INDUSTRIES LIM

PCT 0.021708046 PRECINCT PROPERTIES N

SKC 0.064865822 SKYCITY ENTERTAINMENT

SKT 0.072751225 SKY NETWORK TELEVISIO

SPK 0.088868611 SPARK NEW ZEALAND LIM

TME 0.040137188 TRADE ME GROUP LIMITE

TWR 0.011065725 TOWER LIMITED

WBC 0.027295656 WESTPAC BANKING CORPO

ZEL 0.034716259 Z ENERGY LTD

Im thinking of buying some 'DIV' but looking at the list above there are a few companies I would not rather be in. (have just sold some GNE and MELCA so do need to buy some yielding stocks to compensate) I don't feel too confident about SKT, ZEL, SPK, and there are a couple I do not really know. I suppose not too bad if there are only 3 I do not like on reflection and its nicely diversified within NZ. I could think of worse options in the NZ managed funds market.

[simjp81]

No distribution this time round. Anyone have any thoughts on that? Is this fund struggling?

[Onion]

No distribution this time round. Anyone have any thoughts on that? Is this fund struggling?

That is somehow quite amusing to me. The EFT that invests in NZ's "High Dividend Index" won't pay a dividend! :confused:


Disc: Not a holder - but have been looking at EFTs recently as I don't really trust myself to make informed share selection decisions (I normally just follow Roger :eek2: and Couta's :scared: investment strategies)

[Bobdn]

Devon Funds dividend fund has been getting really solid results. Might be worth a look

[simjp81]

That is somehow quite amusing to me. The EFT that invests in NZ's "High Dividend Index" won't pay a dividend! :confused:


Disc: Not a holder - but have been looking at EFTs recently as I don't really trust myself to make informed share selection decisions (I normally just follow Roger :eek2: and Couta's :scared: investment strategies)

Haha, yeah i thought it amusing too.

Oh well. FNZand MDZ it is

[Bobdn]

Yeah, Devon Funds dividend fund has been getting 19.66% returns PA. Is that better than nzx's ETF's?

[Harvey Specter]

No distribution this time round. Anyone have any thoughts on that? Is this fund struggling?Most NZ companies only pay dividends 2 times a year. Does this fund pay quarterly and is therefore out of sync 2 times a year with the companies it follows?

[simjp81]

Most NZ companies only pay dividends 2 times a year. Does this fund pay quarterly and is therefore out of sync 2 times a year with the companies it follows?

Looks like rhey have just changed it from 4 times a year to two. A recwnt change.

[ynot]

I'm wanting a breakdown of latest weighting and allocation for DIV. Had a quick look on smartshare website, can't find it. Apparently weighting is adjusted quarterly. Any idea where I find the latest info ? Thanks.

[blackcap]

I'm wanting a breakdown of latest weighting and allocation for DIV. Had a quick look on smartshare website, can't find it. Apparently weighting is adjusted quartly. Any idea where I find the latest info ? Thanks.

your guess is as good as mine. I suggest ringing smartshares, they have an 0800 number on their website and take it from there.

[ynot]

I eventually found the latest weighting 30/03/20.

[blackcap]

I eventually found the latest weighting 30/03/20.

Correct me if I am wrong, but that table only gives the top 10 but misses out on the remaining 40? Sneaky buggers. I might give them a call myself when time permits to see why this information is being censured.

[ynot]

Yes, I have asked them to send me the rest of the list.
I was primarily interested to see how they had rejigged the heavy weights post virus.

[tonyoh]

I think they are re-jiged June and december. I asked them a while ago on the latest listings, and they sent me to https://disclose-register.companiesoffice.govt.nz
You have to have a bit of a search there, but they have to update the info there regularly. The smartshares and sorted websites are quite out of date on the listings information.

[ynot]

I notice IFT have moved up the list this year.

[Jaa]

I eventually found the latest weighting 30/03/20.

Interesting, how long will Auckland Airport stay in the dividend index? Last dividend was in October and not likely to pay another one for a year or two.

Companies like AIR, SKC and ZEL must be at risk too.

[huxley]

I think it’s changed to an index managed by S&P, so the full list is propitiatory.. I think.. https://eu.spindices.com/indices/strategy/sp-nzx-50-high-dividend-index

[Jaa]

I think it’s changed to an index managed by S&P, so the full list is propitiatory.. I think.. https://eu.spindices.com/indices/strategy/sp-nzx-50-high-dividend-index

Was just looking at this as well. Can't find the constituents but the chart gives it away. Also read that there are only 24 of them! So in future might be only 20, will be less diversification then.

[Jaa]

Index Eligibility

To qualify for membership in the index, a company must satisfy the following criteria:
1. Be a current member of the S&P/NZX 50 Index.
2. Have paid dividends in the past 12 months.

Additions

Additions are made to the index only during the semi-annual rebalancings, except for spinoffs as detailed in Corporate Actions. To be eligible for addition to the index, a company must meet the criteria detailed in Index Eligibility.

Deletions

Constituents removed from the S&P/NZX 50 Index remain in the S&P/NZX 50 High Dividend Index until the subsequent semi-annual rebalancing.

Monthly Dividend Review

S&P Dow Jones Indices reviews index constituents on a monthly basis. If S&P Dow Jones Indices
determines that an index constituent has eliminated or suspended its dividend, omitted a payment, or
reduced its calendar year dividend amount and will no longer qualify for the index at the subsequent
reconstitution, it will be removed from the index effective prior to the open of the first business day of the
following month and not replaced until the following reconstitution. Any changes are announced five
business days prior to month-end. The determination of qualifying for the index at the subsequent
reconstitution is at the discretion of the Index Committee. The decision to remove an index constituent
due to dividend elimination, suspension, omission, or reduction is based on information publicly
announced by the company as of seven business days prior to month-end.

Rebalancing

The index is rebalanced semi-annually, effective after the market close on the third Friday of January and July of each year. The rebalancing reference dates are after the close of the last business day of December and June, respectively.

[Jaa]

Finally found a list (https://topforeignstocks.com/indices/components-of-the-nzsx-50-index/), as at Jan 1, 2020. Looks about right except there is one extra (A2 Milk doesn't pay dividends).

1 Fisher & Paykel Healthcare Corp Ltd Healthcare
2 Spark New Zealand Ltd —
3 Auckland International Airport Ltd Industrials
4 Ryman Healthcare Ltd Healthcare
5 Fletcher Building Ltd Basic Materials
6 Meridian Energy Ltd Utilities
7 The a2 Milk Co Ltd Consumer Defensive
8 Contact Energy Ltd Utilities
9 Mainfreight Ltd Industrials
10 Infratil Ltd Utilities
11 Mercury NZ Ltd Utilities
12 SkyCity Entertainment Group Ltd Consumer Cyclical
13 Ebos Group Ltd Healthcare
14 Goodman Property Trust Real Estate
15 Chorus Ltd —
16 Kiwi Property Group Ltd Real Estate
17 Z Energy Ltd Energy
18 Port of Tauranga Ltd Industrials
19 Precinct Properties New Zealand Ltd Real Estate
20 Genesis Energy Ltd Utilities
21 Air New Zealand Ltd Industrials
22 Summerset Group Holdings Ltd Healthcare
23 Freightways Ltd Industrials
24 Property For Industry Ltd Real Estate
25 Argosy Property Ltd Real Estate

[huxley]

A lot of those will have to go! No div for the foreseeable 😅

[ynot]

Latest list

[ynot]

So do you buy into DIV and pay .5% and set and forget or make your own list. I know it comes down to how talented you are but tell what you think anyway.

[Panda-NZ-]

So do you buy into DIV and pay .5% and set and forget or make your own list. I know it comes down to how talented you are but tell what you think anyway.

Slight advantage from tax rate with this fund. rwt= 33% for sharees but PIE is 28% so you'll save that 5%.

IF you're pie marginal rate is lower than 28% you can claim the excess tax paid and imputation credits on your tax return (which is same with shares).

[huxley]

Plus, the fund automatically re balances for you so you can set and forget and not have to pay brokerage. I have some funds in this ETF, but also hold individual companies as well :)

[dibble]

I bought a few as a sort of bond proxy, if you can scrounge them for about a buck and assume about 5% gross (but treat any dividends this year as a bonus), the value might oscillate but the underlying capital is arguably safer than your average bond (where 3% is good these days) as a single large company may go into liquidation but there would have to be an almighty financial drama for DIV to drop below eg 20c. Plus there is an upside if it ever returns to the recent 7%.

[winner69]

Timing is everything eh

An acquaintance was lamenting the fact that a financial advisor told him this DIV was a good way to go for dividends

He's suffered a 40% loss of capital since --- just bad timing I told him

Betcha many punters sseeking high dividend yields from stocks in last year have lost capital