NEW YORK (
) -- The new
Guggenheim ABC High Dividend ETF
(ABCS) plays into an ETF segment that could be crucial in helping U.S.-based investors in enjoying stock market success over the course of the next 10 years. The fund accesses high-yielding stocks from Australia, Brazil and Canada -- the "ABC" in the name of the fund.
The uniting theme to the country selection is that they are commodity-based countries and obviously, these countries, along with other commodity-based countries like Chile and Peru, have become very popular and rewarding investment destinations. Also, the trends that have led to success for these markets appear to still be in place.
The fund is not a simple repackaging of mega-cap stocks from each country that are ubiquitous in so many funds; names like
. The fund will have 30 holdings with 46% of the fund in Brazil, 29% in Australia and the rest in Canada. With only 30 holdings, some of the names have fairly large weightings. The largest holding is beer and soft drink maker
from Brazil at 9.1%, followed by Australian telecom provider
(TLSYY) at 8.4%, followed by several other Brazilian companies with weightings greater than 4%.
As this is a dividend-centric fund, it will not be a surprise that utilities is the largest sector at 20%, followed by telecom at 17%, and industrials and discretionary each at 12%. The fund will have a 0.65% expense ratio and currently, there is no yield information available as the fund is brand new, but investors should expect the payouts to be lumpy as some of the stocks in the fund will only pay one annual dividend as opposed to the quarterly dividend that U.S. investors are accustomed to.
As mentioned above, the fund could play a crucial role for US investors preferring to build foreign exposure using broad-based funds similar to the
iShares MSCI EAFE Index Fund
. Unfortunately, EFA is dominated by countries that are fundamentally most similar to the U.S., and with many similar problems as the U.S. The UK, Japan, France and Germany account for 58% of the fund making it very unappealing.
The solution to foreign exposure with broad-based funds, but bypassing the lousy fundamentals in EFA, could be to combine slightly narrower funds to achieve a reasonably broad allocation. A combination of the ABC High Dividend ETF and the
Global X Nordic 30 ETF
would be one way to go. GXF allocates 47% to Sweden, 22% Denmark, Norway 17% and Finland 14%. Obviously, this mix at the country level, when combined with the ABC fund, looks much different than EFA.
The sector allocations between ABCS and GXF also offer diversification. Financials are the largest sector in GXF at 27% followed by industrials at 21% and tech at 11% which is a much different mix than telecom and utilities in ABCS, which speaks well of this pairing. A notable but modest underweight would be energy. ABCS has 9% in energy and GXF only has 6%. A small allocation to an energy fund would, of course, address this issue. The
EG Shares Emerging Markets Energy ETF
would obviously fill the energy need, provide a little more emerging-market exposure, but do so without overlapping the Brazilian stocks in the ABC High Dividend ETF.
If the U.S., Europe and Japan continue to struggle in the new decade as they did in the previous decade then portfolio success will require innovative ideas including looking under the hood of narrow ETFs and creating a combination more suited to what is going on in the world today.
Disclosure:GXF and VALE are client holdings.
Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;
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