Industry Updates

Investors pile into dividend ETFs as bets on cyclical recovery continue

XGSD saw $146m inflows in the week to 19 March, according to Ultumus

Jamie Gordon

a person holding a pen over a pile of coins

Dividend exposure was one of the stand-out trends last week, showing that optimism towards COVID-hampered cyclical equities remains strong.

According to data from Ultumus, the SPDR S&P Euro Dividend Aristocrats UCITS ETF (SPYW) saw inflows of $87m in the week to 19 March, while the SPDR S&P US Dividend Aristocrats UCITS ETF (SPYD) and the iShares EURO STOXX Select Dividend 30 UCITS ETF (EXSG) took in $78m and $55m, respectively, over the same period.

However, leading the pack by some distance was the Xtrackers Stoxx Global Select Dividend 100 Swap UCITS ETF (XGSD), which claimed $146m in inflows during the period.

With cyclical equities being the worst-hit by coronavirus volatility last year, many companies chose to conserve cash by cutting or scrapping dividend pay-outs altogether. 

Likewise, many regulators forced banks to curtail their pay-outs as a political quid quo pro for the large sums of public money they received over the past year. 

As economies prepare to loosen their lockdown restrictions, there is an expectation the same cyclical equities that have been bouncing back since the Pfizer vaccine results last November will continue to reinstate or increase their dividends as the revival of the ‘old economy’ continues.

The level of confidence in this line of thought is illustrated by the popularity of DXSB, an ETF that is synthetically replicated through swap contracts. This means they pay a predetermined amount (fixed leg) for the sum of all dividend pay-outs by a basket of equities over a set period.

DXSB's popularity with investors would imply the market expects reliable dividend pay-outs, if not additional hikes, in the near future.

Toby Dudley-Smith, head of UK passive sales at DWS, said: “In March, we have seen strong inflows into DXSB as investors hunt for yield and look to increase their exposure to global financials. 

“The ETF has close to a 50% weighting in financials and tracks the 100 highest dividend paying stocks from the Stoxx Global indices.”

The popularity of dividend ETFs may not come as a surprise to many, but it does validate continued optimism in cyclicals and value trades.

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