A Smart Beta Idea for International Income

ONTL “is based on a multi-factor index that screens for company quality (as defined by profitability, efficiency, earnings quality and leverage), low volatility and higher yield. It draws from stocks from developed countries outside the United States. Companies are capped at 5% of the index. Launched in March, ONTL has 460 holdings with greatest sector concentration in consumer staples, health care, and industrials,” reports Bank Investment Consultant.

Specifically, the quality factor is based on profitability, efficiency, earnings quality and limited leverage, which have historically been a good way to separate good companies from weaker ones. A volatility screen is also in place to focus on stocks that exhibit lower volatility, which tend to perform better.

ONTL allocates over 48% of its combined weight to consumer staples, healthcare and industrial stocks. The ETF’s underlying index yields almost 3.5%, well above what investors find on the S&P 500 or developed markets sovereign debt.

The U.K. and Switzerland combine for over 30% of ONTL’s geographic weight. Japan, a low-yielding market with ample dividend growth potential, is 12.6% of the ETF’s weight.

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