Alternative Beta Funds Are All High Dividend Oriented

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1) Alternative beta funds are all high-dividend oriented and therefore strive to provide low variance on high returns, achieved through a combination of active management and passive tracking of their corresponding benchmark indices. The differing benchmarks mean that each ETF is invested in different sectors and firms and these strategies lead to varying performance. RDV RDV matches the Russell Australia High-Dividend Index; its investments are primarily in large, well established firms such as financials and property trusts (highest of the four ETFs). RDV’s investment consists of 50 large-cap stocks for diversification, and as firmly entrenched companies, these value stocks tend to lower risk with a more constant stream of dividends…show more content…
IHD IHD’s portfolio contains 50 securities from the ASX300, like RDV, and also limits individual equity weights at 4%, the lowest of the four ETFs. Consequently, VHY VHY diversifies its securities by limiting sectors to 40% and individual funds at 10% to avoid overinvestment in a single stock. These limits are the highest of the four funds and therefore VHY sees large investment in large-cap value stock on the ASX that have a historically strong dividend payout. 2) The proxy for all ETF analysis is the ASX300 due to ease of information availability. Ideally, individual benchmarks would also be used to identify the effectiveness of managers in matching their desired indices. However, using the market portfolio does allow better comparison of performance individual ETFs against each other relative to the market (Henriksson 1984) and makes analysis under CAPM, Single-Index Model and related measures more accurate. Furthermore, the R-Squared is high for all stocks against the ASX300 indicating a robust relationship. Comparing the four ETFs, the fund with the highest monthly excess-return, on the risk-free rate, is VHY (0.024%). Clearly this is not risk-adjusted and consequently the reward-to-variability ratio (Sharpe 1964) is utilised to quantitatively measure return for each ETF relative to the total risk it exposes investors to. However, the returns for all ETFs are not normally distributed, by analysing Kurtosis and skewness, and excess-returns are
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