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:
Attachment 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/docu...-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:
Attachment 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/docu...-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/m...oduct-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