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Newsletter 23

11 Sept 2020

Portfolio Re-balance

As you will be aware this low interest rate and COVID-19 recession has seen income dry up. The cash rate is 0.25% and the RBA is engaging in yield curve control. International bonds are negative yielding and many companies have ended or reduced dividends. We spend a lot of time looking for income opportunities for you. 

The ZYAU ETF pays dividends quarterly, focussed on dividend yielding stocks and there was a high level of franking credits attached. It also re-balanced twice per year so that poor performers were dropped and replaced. Its performance had been generally solid and complementary to bonds which is how we position it in most portfolios. 

COVID-19 recession has highlighted some weaknesses in ZYAU and it is pleasing to advise that the following 2 changes were recently introduced to the ZYAU ETF’s underlying index, i.e. S&P/ASX 300 Shareholder Yield Index. These changes will be applied to the ZYAU ETF from October 2020.

1. Monthly Dividend Review

S&P Dow Jones Indices (S&P DJI) will now review index constituents on a monthly basis. If S&P DJI determines an index constituent has (a) eliminated or suspended its dividend, (b) or omitted a payment in that month, it will be removed from the index effective prior to the open of the first business day of the following month and will not be replaced until the next reconstitution. The decision to remove an index constituent due to dividend elimination, suspension, or omission is based on information publicly announced by the company as of seven business days prior to month-end. The weightings of these deleted stocks will be redistributed among the existing constituents of the index. The Monthly Dividend Review rule is in effect as at 31 August 2020.

Following the implementation of the new Monthly Dividend Review, the index removed the below 5 stocks on 31 August 2020:

2. Constituent Weightings

Constituents are weighted by the product of their float-adjusted market capitalization and shareholder yield, now subject to a new single stock cap of 5%, revised down from a previous limit of 10%. Any excess weight is proportionally redistributed to all non-capped constituents. This rule will come into effect following ZYAU’s next balance on October 16th.

The above changes should strengthen ZYAU’s index for Australian yield, therefore ZYAU ETF could be in a better position to generate high income for investors. 

If you have any questions please feel free to contact us.

Warning: Any advice or information provided is general advice only, and has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any General Advice provided, you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. If you wish to discuss the contents on this newsletter, please do not hesitate to contact us.

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