[TOP STORY] The CoreShares S&P ETF that’s free of tech

These ‘really are the kind of companies that have proven their track record through cash flow and dividend payments’ – Chris Rule on the CoreShares S&P Global Dividend Aristocrats ETF.

SIMON BROWN: I’m chatting now with Chris Rule from CoreShares. Chris, I appreciate the early morning time. Your CoreShares S&P Global Dividend Aristocrats ETF: we were chatting on Friday and you pointed out to me that because of its methodology, which has a long track record of dividend payments, if memory serves, for US companies – I think it’s 25 years – means it is free of tech. And looking at that chart, it is definitely free of tech, because it’s been under pressure, but not anything like we’ve seen on the Nasdaq; and truthfully not even as much as we’ve seen on the S&P 500.

CHRIS RULE: Yes, that’s a hundred percent right. The methodology of dividend [in] Aristocrats has been around for some time now, but [for] the companies to qualify in the US – you said 25 – it’s actually 50 years.

SIMON BROWN: Oh.

CHRIS RULE: Yes. So it varies from region to region, but they really are the kind of companies that have proven their track record through cash flow and dividend payments. So when you look at the sector make up, going into, say, the beginning of this year, tech was sitting at around 5% of the strategy, and something like consumer staples on the other hand was close to 20%. And that’s almost an exact inverse of what you see, say, in the MSCI World or in MSCI ACWI. So the exposure looks very different. And then because of some of the pressure around in the market and interest-rate pressure and inflation pressure, the behaviour’s been very different, of course, in the strategy relative to some of those names – the Nasdaq and the S&P 500 and so forth that you named.

SIMON BROWN: That actually then makes me think about it – I’d looked at it and thought, hey, this is a nice non-tech. That’s not an untrue statement but, particularly considering most investors, we are going to be in MSCI World, or we are going to be in S&P 500, or your global one, [where the code is ‘global]. They all serve a purpose, they’re all a little tech-heavy. This is almost a nice contrarian to have in the portfolio, because it is significantly less volatile. It’s going to be a little more boring, but there’s a space for some boring in an equity portfolio.

CHRIS RULE: Absolutely.

Before we launched the fund, we did a lot of work, particularly in the private clients stock-broking markets, and that suggested that clients, when they were externalising their money and investing offshore, were actually looking for safe-haven investments.

So, like you say, boring companies, the kind of companies that you recognise, that have been around for a long time – Unilever and Procter & Gamble, Coca-Cola and Pepsi. These are the kind of companies actually that they were looking to invest in as their nest egg.

A large reason why clients were investing offshore was to diversify their exposure and to protect the longevity of their wealth ultimately.

And so the way we positioned this it is exactly like that. It’s a diversifier in the portfolio, it’s a portfolio of high-quality stocks that have proven through time their business models, essentially.

SIMON BROWN: Yes. And 50 years of dividend payments – that does not come lightly at all. And it is stocks, it’s IBM, it’s Colgate Palmolive, it’s, as you say, Procter & Gamble. Even if times are tough, we are still brushing our teeth.

We’ll leave it there. Chris Rule at CoreShares, as always I appreciate the early morning insights.

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The old dividend game has been overtaken by massive equity buyback programs. Not sure that the reviews differentiate this.

For example, Apple pays a modest dividend but cancels multiples of this each year in buybacks. They could if they wanted, go negative equity right now. ie will have bought back all capital shareholders ever injected as well as paid out all the profits the company ever generated. Think about that a minute and then think again for another minute. Close to insane vindication of ruthless execution and only investing if return on capital is north of 30%. Find a big acquisition in Apple history…

After doing above (shareholders fully repaid) they will also still have more cash and investments on balance sheet than their tax effective debt AND kick out 75billion a year in operating cashflow.

yip, buybacks that often destroy value buying at insane high valuations.

Even worse is equity awards to staff and execs often exceed buybacks meaning share count actually goes up.

End of comments.

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