Colorado-based mutual fund provider Advisors Asset Management (AAM) is listing a new smart beta ETF that targets dividends and value. The AAM S&P Developed Markets High Dividend Value ETF (DMDV) will track the S&P Developed Ex-US Dividend and Free Cash Flow Yield Index, which screens companies in rich countries for high dividends and large chunks of free cash flow.
Companies with the top five highest scores based on those criteria in each GICS sector will be put in the index. The index is equally weighted and caps the number of companies one country can contribute at 13.
The fund is AAM's third ETF that uses free cash flow, and one of almost 10 US ETFs listed in the past six months that focus on this variable (we're noticing a trend...). DMDV will rebalance twice a year.
Analysis - tax, old people and advisors
DMDV has a neat and simple investment strategy. It is created with advisors in mind and hopes to provide older investors with a sustainable income solution. Meshing free cash flow with dividend yield, we believe, is sensible as it ensures that the dividend yield is not being jacked up by companies binging on debt.
If we had a question for DMDV it would be tax related. Investing internationally is great but it comes with the challenge of withholding tax. Foreign investors often look at the Australian and Canadian markets with an eyeball on their higher dividend yields. Yet they sometimes forget that their dividends are high for Australians and Canadians - everyone else has to give up 15% of the dividend cheque in tax.
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