Dividend Aristocrats ESG funds combine sustainability criteria with stable dividends to create the next generation of income investment. Investors can now access both quality income and an ESG overlay on Global, US and European exposures.
Markets continue to face challenges around inflation, rising interest rates and softening growth. Hear from Ryan Reardon, SPDR ETFs and Ari Rajendra, S&P Dow Jones Indices on how the defensive, low-beta bias of Dividend Aristocrats can help investors in this environment.
Markets continue to face major challenges. On the economic front, high inflation prints have forced central banks to increase interest rates aggressively, which has had a ‘cooling’ effect on growth expectations. And geopolitical turmoil has brought to the surface real questions about labour conditions and the future of global trade.
We believe Dividend Aristocrats can offer a way to navigate these challenges, and investors have taken a real interest in this approach. So far this year, we’ve seen more than $1.7 billion of net flows into Dividend Aristocrats strategies.1
So Ari, what is it about the S&P Dividend Aristocrats indices that interests investors given the market backdrop and how do the ESG versions of these indices align with longer-term geopolitical trends?
Dividend Aristocrats indices focus on dividend stability as a basis for stock selection. This stability provides defensiveness through the higher dividend yield and inherent bias toward lower beta defensive stocks. The indexes currently have an underweight to growth-heavy technology, consumer discretionary and communication services sectors, which has helped to avoid some of the headwinds created by higher interest rates.
On top of that, Dividend Aristocrats ESG uses exclusionary screening based on business activity, UNGC non-compliance, controversy monitoring and the robust corporate sustainability assessment. These filters target stocks that align with longer-term investor considerations around environmental, social and governance concerns.
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Investing involves risk including the risk of loss of principal.
Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions.
The returns on a portfolio of securities which exclude companies that do not meet the portfolio's specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.
A Smart Beta strategy does not seek to replicate the performance of a specified cap-weighted index and as such may underperform such an index. The factors to which a Smart Beta strategy seeks to deliver exposure may themselves undergo cyclical performance. As such, a Smart Beta strategy may underperform the market or other Smart Beta strategies exposed to similar or other targeted factors. In fact, we believe that factor premia accrue over the long term (5-10 years), and investors must keep that long time horizon in mind when investing.
Investing in foreign domiciled securities may involve risk of capital loss from unfavourable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations. Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.
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Expiry: 29 February 2024
1 Source: Bloomberg Finance LP as of 9 September 2022.