Global X SuperDividend ETF: Still Not Super

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About: Global X SuperDividend ETF (SDIV), Includes: ACWI, BOE, GCOW, HEQ, IRT, MUB, NEA
by: Maks F. S.
Summary

Discussion of the Global X SuperDividend ETF, a high dividend-focused exchange-traded fund.

The fund currently distributes a 7.24% dividend.

A look at the fund and how it performs in relation to its benchmark and a number of competing products.

Overall, the fund continues to disappoint despite its focus on dividends.

If there is one constant in investing, it is that less astute investors will be drawn to "sexy" investment ideas. For equity investors these ideas may the story of some penny stock which is poised to grow from $.05 to $10 per share, or perhaps a new ETF targeting some exotic sector which retail investors would otherwise have no way of accessing.

For income investors, these are generally ETFs and ETNs promising really high yields such as the plethora of 2x leveraged ETNs or the highly popular but poorly performing ETFs such as the Global X SuperDividend ETF (SDIV).

We discussed SDIV last year in the article "Global X SuperDividend ETF: Is It Really That Bad?"

What we found was that while yes, the fund provided a very strong distribution, the underlying performance and how the fund operates left very much to be desired.

Today, the fund has close to $1 billion in assets under management which makes it quite successful in terms of its capital raise, but does it deserve your capital?

Let's take a look!

Fund Basics

  • Sponsor: Global X
  • Index: Solactive Global SuperDividend Index
  • AUM: $886 million, down from $941 million as of April 1, 2018.
  • Investment Objectives: Seeks to invest in 100 of the highest dividend yielding equity securities in the world.
  • Number of Holdings: 114
  • Current Yield: 10.27% SEC yield, 8.55% Distribution yield, Distributed Monthly
  • Inception Date: 6/8/2011
  • Fees: .58%

Source: YCharts and Global X Website

Since our last article, the fund's assets under management have decreased from $941 million to the current $886 million, a decrease of 5.8%.

What we can see however is that despite completely lackluster performance, the fund continues to attract new money.

Chart SDIV data by YCharts

In 2018, the fund brought in about $40 million in new assets and has been net positive over the last five years. As such, we can infer that the loss in capital since our last article was due to investment losses and not investors heading for the doors.

Source: YCharts

Portfolio wise, the fund's top holdings seem to be a revolving door with the only constant being Independence Realty Trust (IRT).

Source: YCharts

One attractive part of this ETF is that it is not overly concentrated and the top 10 holdings make up just 14.87% of the portfolio.

One major point of consideration for SDIV investors is that this fund is predominantly made up of REITs and Mortgage REITs, making up more than half of the portfolio. This in turn will make the portfolio interest rate sensitive.

Source: YCharts

By chasing the highest distributions, the fund also ends up focusing predominantly on Small and Mid cap securities.

Source: YCharts

The fund is global in nature. One major change since our last article is that the fund is now significantly more weighted to the U.S., with more than 57% now allocated to domestic securities, up from 43.77% a year ago.

Source: Global X Fact Sheet

Performance

So, how did the fund perform?

Since our last article on April 1, 2018, the fund is down 5.55% on a total return basis, accounting for the dividends. If we look at the price per share, SDIV is down 11%.

Chart SDIV data by YCharts

Over the previous year the fund is down 9.8% on a total return basis and experienced a 16% drop in the price per share.

Chart SDIV data by YCharts

Going back three years does present a slightly better picture with investors earning a near 22% total return with the price per share declining 1.02%.

Chart SDIV data by YCharts

The further back you go however the less impressive the fund is.

Despite a broad market rally, over the last 5 years SDIV investors only earned a 9.78% total return coming entirely from distributions. The underlying price per share declined 21.6%.

Chart SDIV data by YCharts

So, is chasing dividends a bad strategy?

To put the fund's performance into perspective, let's take a look at SDIV against its benchmark, the MSCI ACWI as represented by the iShares MSCI ACWI ETF (ACWI). We can also look at the fund against another global cash flow focused ETF, the Pacer Global Cash Cows Dividend ETF (GCOW).

We can also look at the fund against a number of global equity closed end funds such as the Blackrock Enhanced Global Dividend Trust (BOE) and the JH Hedged Equity & Income Fund (HEQ).

Lastly, let's take a look at the fund against a plain vanilla municipal bond fund like the iShares ETF (MUB) or the last municipal closed end fund we looked at, the Nuveen AMT-Free Quality Municipal Income Trust (NEA).

Over the last year, not much has changed for SDIV as it has trailed both its very own benchmark (ACWI) and a competing ETF, the Pacer Global Cash Cows Dividend ETF (GCOW). Beyond that, it has lost significantly more than plain jane municipal bonds, including the iShares ETF (MUB) and the leveraged closed end fund (NEA).

Chart SDIV Total Return Price data by YCharts

Going back three years, the best performance time frame for the fund, we still find that it is nothing to write home about.

SDIV severely under-performs its benchmark MSCI ACWI ETF (ACWI), the competing Pacer ETF (GCOW) and a dividend paying closed end fund (HEQ).

Chart SDIV Total Return Price data by YCharts

Taking out the recently launched Pacer ETF (GCOW) we can get 5 year numbers.

Looking back over this time period should give any SDIV investor heartburn. Not only has it meaningfully under-perform its benchmark, but it has also underperformed both run of the mill equity closed end funds and even the plain, regular municipal bonds, both the ETF and a good quality closed end fund (NEA).

Chart SDIV Total Return Price data by YCharts

Looking at the risk metrics we can get a good idea of the fund strategy's effectiveness.

Source: YCharts

Over the last 5 years, by focusing half of the portfolio on REITs has indeed lowered volatility as shown by the beta of .87. What we find however is that despite the fund not existing during the last financial crisis, it has already sustained a maximum draw-down of 27.21%. Lastly, the fund's risk adjust returns are nothing to write home about with a .2908 Sortino ratio.

Bottom Line

What this fund continues to prove is that a sponsor can raise money and retail investors will continue to invest by simply offering an attractive proposition. In this case, the fund promotes a "Super Dividend" and a 10% yield.

Looking back however, investors would find that they would have done far better by simply investing in a tax free municipal bond portfolio or even taken the money to their bank and purchased a CD.

Of course, this is not a surprise to most smart money investors and why this ETF is predominantly a retail product with less than 15% institutional ownership.

Source: Nasdaq.com

So whose fault is it that the fund performed poorly?

As a mutual fund, this fund would likely not exist as investors would head for the doors or management would be changed for failing to beat its benchmark.

As an ETF however is doing precisely what it is supposed to do. It is following its underlying index, the Solactive Global SuperDividend Index. Therefore, the major problem with SDIV is that it is a poor index and retail investors made the mistake of blindly falling for a sales pitch without asking themselves "How does this index work and how does it fit within my investment policy statement?"

Had more investors done that, I don't believe this fund would continue raising so much capital, after all, it is surely not the lackluster performance!

For a deeper dive into the index, please take a look at my initial article on the fund, "Global X SuperDividend ETF: Is It Really That Bad?"

More information on SDIV is available at the fund's website.

Thank you for reading and I look forward to your comments and our discussion!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.