Lyxor offers ETF on European ‘quality’ stocks
Lyxor Asset Management has launched a new ETF focused on the SG Quality Income index.
The Lyxor Ucits ETF SG European Quality Income NTR seeks income from companies identified as quality companies with potential for capital appreciation.
The index is based on the idea that most historical returns from equity come from dividend yield, and that higher quality companies tend to outperform lower quality ones.
The index is developed by Societe Generale Research based on a proprietary methodology.
The methodology retains non-financial stocks offering a high dividend yield from a universe of high-quality companies selected on factors reflecting their dynamic development in terms of profitability, operating efficiency and balance sheet strength as well as on their distance-to-default scoring.
The investment universe is comprised of non-financial companies from European developed countries having a free float market cap of at least €1bn and 6-month average daily traded volume of at least €1M.
The stocks are selected according to 3 filters:
– A quality score ( defined as the sum of 9 criteria based on profitability, leverage and operating efficiency of the issuer such as ROA, cash flows..) of 7 or better on a scale from 0 to 9
– The 9 criteria are:
• Profitability: ROA positive, CFO (Cash Flow from Operation) positive, change in ROA positive & Accruals negative
• Leverage, Liquidity & source of funds: change in Leverage negative, change in Liquid positive & change in Finance negative
• Operating efficiency: change in Margin positive, change in Turnover positive
– A balance sheet risk score, measured by calculating a distance to default that ranks within the top 40% of the universe
– An expected dividend yield determined through analysts’ consensus. Only stocks whose expected yield is above 4% are included.
The index is equally weighted. Number of stocks is limited to a minimum of 25 and a maximum of 75 selected. Currently there are 52 names in the index.
The index is rebalanced quarterly and weights are reset to equal weighted. Historically, annualized 2-way turnover has been around 100% per annum or roughly 25% per rebalancing.