WisdomTree has launched two dividend growth exchange-traded funds (ETFs) which are skewed towards US and global equities respectively and adopt aspects of Warren Buffett’s investment strategy.
The investment company said both undertakings for the collective investment Of transferable securities (Ucits) ETF strategies, called the WisdomTree US Quality Dividend Growth Ucits ETF and WisdomTree Global Quality Dividend Growth Ucits ETF, will share the same methodology. Both strategies put emphasis on the shifting trends in dividends as well as long-term dividend growth potential.
It will also use three-year average return on equity (ROE) and return on assets (ROE) to determine how efficiently prospective firms generate profits.
WisdomTree said that because ROE, which offers a means of gauging profitability, can be inflated by leverage, while ROA offers a means of mitigating overleverage, the combination of both metrics offers a way of screening for sustainable earnings.
Viktor Nossek, director of research at WisdomTree Europe said: “In building these new proprietary strategies, we employ the same ‘Buffett factors’ of ROE and ROA as a driving force for stock selection in our quality dividend growth strategies, tilting towards quality companies with low debt and high return on equity.”
The ETFs launched on the London Stock Exchange, listed in both sterling and US dollar.
Provider view
Nizam Hamid, ETF Strategist at WisdomTree Europe said: “The addition of these new ETFs – based on an evolving but proven investment strategy focused on quality dividends – means that we now offer Ucits ETFs that cover the full spectrum of dividend and income-related investment themes.
“The WisdomTree Global Quality Dividend Growth Ucits ETF (GGRA) also represents our first global equity product to be launched on our Ucits platform. By creating innovative and transparent strategies, we aim to bring to clients a breadth of dividend-oriented investment solutions that are critical in today’s low interest rate environment.”
Adviser view
Paul Lindfield, director at Manchester-based Sedulo Wealth Management, said: “I do not recommend ETFs directly, but they form a part of the investment solutions we use. We use them to keep the costs down. I am not won over either way by the fact that the ETFs adopt Warren Buffett’s investment principles. The principles of ‘Buffettology’ are what you would expect to be implemented in every investment due diligence process.”
He added: “ETFs have a place in the world, but I would not put all my money on a passive investment. They are cheap and offer a great deal of liquidity, and can be a good solution to cost-conscious investors. I believe that active management can produce better returns for investors than ETFs.”
Charges
The WisdomTree US Quality Dividend Growth UCITS ETF and WisdomTree Global Quality Dividend Growth Ucits ETF will have a total expense ratio of 0.33 and 0.38 per cent, respectively.
Verdict
ETFs have surged in popularity in the years following the financial crisis, and this comes as no surprise. They allow investors to diversify their portfolio by tracking an index or market through a single share, and limit their exposure to capital gains tax. In addition, ETFs are not particularly pricey compared to the levies associated with mutual funds, and have been heralded for transparency over charges.
Warren Buffett enjoys celebrity status in the investment industry, therefore, any new fund that alludes to his investment ideology is likely to attract attention in the first instance.
