The second quarter was another difficult one for global markets, resulting in the first half of 2022 recording the worst first half for developed market equities in over 50 years. Not only for growth assets like equity, but also for bonds, usually a safe-haven for investors during tough times. Against the backdrop of high inflation, rising interest rates, and the threat of global recession, investors have looked to defensive equity allocations.

One way of achieving a defensive equity allocation is by seeking out companies that have demonstrated reliable earnings through the cycle. A well-established index franchise aiming to capture these companies is the S&P Dividend Aristocrats range and CoreShares manages the CoreShares S&P Global Dividend Aristocrats ETF. This is a strategy that selects companies with a long history of paying and growing their dividends. These businesses are robust, cash generative, or as the Boston consulting group would call them – ‘cash cows’ – and are well placed to weather challenging economic conditions. 

Reliable dividend payers

Many investors prioritise cashflow metrics above all others when analysing companies. Cash-generative companies tend to have disciplined management teams, proven business models and low levels of financial gearing. This implies quality, which makes them attractive assets. Furthermore, because cashflows are very difficult to manipulate, cash flow difficulties are usually one of the earliest warning signs that a business is in trouble.

These companies are typically reliable divided payers. 

Systematic company selection

An index that selects shares based on their dividend payout histories is comparable to many dividend-centric active mandates, but instead is delivered through a low-cost index solution.  Indices are transparent and, thanks to data and index technology, can systematically screen thousands of companies with these attractive dividend characteristics.

For example, the CoreShares Global Dividend Aristocrats ETF has delivered about 1.50% more yield over the last year when compared to the average yield of the ASISA Global Equity category. The TER of this ETF is 57bps, far below the average fund fee in this category of 1.51%.

Source: Morningstar to end June 2022

In other words, these investment strategies are popular because they tend to deliver better outcomes to investors at lower costs.

Sectors Analysis

The CoreShares Global Dividend Aristocrats ETF has consistently been overweight consumer staples (a defensive sector) and underweight technology and consumer discretionary sectors compared to market-cap weighted benchmarks.

Whilst a slight laggard during times of strong returns in the technology sector, the CoreShares S&P Global Dividend Aristocrats ETF has outperformed market-cap weighted exposures by ~6% over the first half of 2022 due to its quality orientation which has a defensive nature.

How does this fund fit into a portfolio and who should consider investing?

ETFs are efficient and cost effective, and are suitable for any type of portfolio or investor, including both retail and large institutional investors. They are a useful tool for asset allocation, both as a long-term holding or as a short-term portfolio management tool (for example, to equitise cash flows or to tactically over- or under-weight a particular allocation).

The CoreShares Global Dividend Aristocrats ETF is well suited to investors who want to participate in equity markets with a defensive tilt, due to the quality and robust nature of the companies that make up the strategy

Importantly many local investors who buy global strategies are looking for a relatively safe and stable investment – almost like an insurance policy against South Africa-specific risks. A more defensive equity strategy suits that purpose extremely well.

The CoreShares Global Dividend Aristocrats ETF is liquid, transparent and well diversified.

Key Facts

For more info please visit the fund page or the latest performance metrics page.

Are you looking to get in touch? To ensure we get the most relevant person to call you back, please select whether you are a Private or Professional Investor below: