INVESTOPEDIA: Getting Paid With a Europe ETF (OEUR)
By Todd Shriber | May 23, 2017 — 12:00 PM EDT
Europe exchange-traded funds (ETFs) are experiencing a renaissance of sorts this year as investors look for alternatives to the lofty valuation multiples being assigned to U.S. equities. Investors considering participation in the Europe ETF market do not need to embrace higher-volatility stocks or lower-quality names to get in on the action. They can even earn income with ETFs such as the O’Shares FTSE Europe Quality Dividend ETF (OEUR).
OEUR, which turns two years old in August, follows the FTSE Developed Europe Qual/Vol/Yield Factor 5% Capped Index. That benchmark “is designed to measure the performance of publicly-listed large-capitalization and mid-capitalization dividend-paying issuers in Europe that meet certain requirements for market capitalization, liquidity, high quality, low volatility and dividend yield,” according to O’Shares Investments. (See also: Do Low Volatility Smart Beta ETFs Make Sense?)
An oft-cited rub with low-volatility strategies is that, while these funds protect investors on the way down, the emphasis on volatility reduction leads to leaving some money on the table when stocks are soaring. While that is the case on a historical basis across various low-volatility funds, it is hard to quibble with the 16.3 percent year-to-date return offered by OEUR.
Investors should also consider OEUR’s attention to the quality factor. Often, the quality factor as it applies to dividend stocks places more merit on a company’s ability to continue paying and growing its dividend with less regard for high yields. That works in favor of investors over the long haul because some high-yield dividend payers can have shaky financial positions, while the opposite is true of many consistent dividend growers. In other words, OEUR’s dividend yield of 2.5 percent is not overly impressive, but the ETF’s holdings can sustain and grow those payouts, traits that are more important than a high yield. (See also: The 5 Best Dividend-Paying ETFs.)
OEUR, which hit record highs on Monday, has a geographic lineup that is familiar to dividend investors experienced with European equities. The U.K. and Switzerland, two of Europe’s top dividend growth markets, combine for about 46 percent of the ETF’s weight. At 13.7 percent, France is the largest Eurozone weight in OEUR. Overall, the ETF features exposure to 14 countries, nine of which are Eurozone nations.
OEUR’s sector allocations are also familiar among dividend-oriented strategies, as consumer staples and healthcare names combine for 44 percent of the ETF’s weight. Due to the fact that many of those companies generate revenue in dollars and that OEUR is not a currency-hedged ETF, investors in the fund should favor the current scenario of the dollar being weak against the euro and other developed Europe currencies. (See also: Encouraging Signs From Europe With This ETF.)
Before you invest in O’Shares Investments℠ funds, please refer to the prospectus for important information about the investment objectives, risks, charges and expenses. To obtain a prospectus containing this and other important information, please visit www.oshares.com to view or download a prospectus online. Read the prospectus carefully before you invest. There are risks involved with investing including the possible loss of principal.
Concentration in a particular industry or sector will subject the Funds to loss due to adverse occurrences that may affect that industry or sector. The funds may use derivatives which may involve risks different from, or greater than, those associated with more traditional investments. The funds' emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform the market. Also, a company may reduce or eliminate its dividend after the Fund's purchase of such a company's securities. Returns on investments in foreign securities could be more volatile than, or trail the returns on, investments in U.S. securities. Exposures to foreign securities entail special risks, including political, diplomatic, economic, foreign market and trading risks. In addition, unless perfectly hedged, the Fund’s investments in securities denominated in other currencies could decline due to changes in local currency relative to the value of the U.S. dollar, which may affect the Fund’s returns. The funds' hedging strategies may not be successful, and even if they are successful, the funds' exposure to foreign currency fluctuations is not expected to be fully hedged at all times. See the prospectus for specific risks regarding the Fund.
The securities of small capitalization companies are often more volatile and less liquid than the stocks of larger companies and may be more affected than other types of securities during market downturns. Compared to larger companies, small capitalization companies may have a shorter history of operations, and may have limited product lines, markets or financial resources.
Past performance does not guarantee future results. Shares are bought and sold at market price (not NAV), are not individually redeemable, and owners of the Shares may acquire those Shares from the Funds and tender those shares for redemption to the Funds in Creation Unit aggregations only, consisting of 50,000 Shares. Brokerage commissions will reduce returns. Shares are not individually redeemable and can be redeemed only in Creation Units. The market price of shares can be at, below or above the NAV. Brokerage commissions will reduce returns. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 PM Eastern time (when NAV is normally determined), and do not represent the returns you would receive if you traded shares at other times.
O’Shares Investments℠ funds are distributed by Foreside Fund Services, LLC. Foreside Fund Services, LLC is not affiliated with O’Shares Investments℠ or any of its affiliates.