Investors interested in gaining more precise exposure to market segments may turn to smart beta exchange traded fund strategies.
For investors looking to gain targeted exposure to value and growth plays, they may consider the Metaurus Advisors’ US Equity Ex-Dividend Fund – Series 2027 (NYSEArca: XDIV) and Metaurus Advisors’ US Equity Cumulative Dividends Fund – Series 2027 (NYSEArca: IDIV).
Donald M. Callahan, Senior Managing Director and Partner at Metaurus Advisor, told ETF Trends that XDIV allows investors to purchase passive S&P 500 index “beta” at an implied discount on an unlevered basis, which can materially impact returns.
“Said differently, investors are able to purchase full S&P 500 price exposure at about 80% of the cost of comparable exposure in another S&P 500 ETF such as SPY, IVV or VOO,” Callahan said. “Investors will forego (via the discount) 100% of the expected dividends of the index without receiving a ‘dividend equivalent payment.’ This alone could save non-US investors over 60/b.p./annum in dividend withholding tax, depending on tax jurisdiction.”
Unique Tax Advantage
Unlike other stocks or ’40 Act funds that subject non-resident aliens to US estate tax, Callahan said the fund is taxed as a partnership that holds only U.S. Treasuries and futures.
“Non-U.S. persons have a reasonable basis to treat the fund as it would a direct ownership interest in U.S, which are exempt from U.S. estate tax,” he said.
IDIV tries to reflect the performance of the Solactive Dividend Index, which aims to track dividends of the companies in the S&P 500 Index without exposure to the price movements in the constituent index stocks.
The value of the Solactive Dividend Index and the value of the Dividend Fund’s Shares will be affected by the ordinary cash dividends that have been paid to date and general expectations in the market regarding the future levels of dividends, according to a prospectus sheet. It will try to achieve its target dividend exposure through cash and cash equivalents, along with S&P 500 Dividend Futures Contracts.
Dividends A Different Way
The dividend ETF may be seen as a fixed-income alternative, potentially providing increased cash flow, reduced interest rate sensitivity, adjustable equity market exposure and monthly distributions.