VT - PID ETF: Limited Incentive To Pursue

2023-12-11 06:12:44 ET

Summary

• The Invesco International Dividend Achievers ETF is a $1bn product that covers 50 international stocks, including ADRs and GDRs.
• PID compares unfavorably to the Invesco Dividend Achievers ETF which focuses only on a larger pool of domestic dividend achievers.
• PID's heightened Canadian exposure is useful, but developments on the charts, and the valuations dampen the long case even further.

ETF Snapshot

The Invesco International Dividend Achievers ETF ( PID ) is a ~$1bn sized product that offers coverage to 50 international stocks that have qualified as International Dividend Achievers. Note that besides your classic common stocks, this product also covers ADRs (American Depository Receipts) and GDRs (Global Depository Receipts).

Unappealing Screener and Track record

Some of you may not be aware of this, but you also have a competing dividend achievers’ product from the same fund house which focuses on domestic stocks alone. The product in question is the Invesco Dividend Achievers ETF ( PFM ) and overall, we feel that it has an edge over PID.

Interestingly enough, PFM offers coverage to a wider pool of names (over 400 stocks versus 50 for PID) despite levying more stringent screening standards than PID. PFM requires its prospective stocks to have grown their dividends for a minimum of 10 consecutive years, whereas PID’s barriers are rather low at just 5 consecutive years. We feel allocating a tag of “Dividend Achiever” for just a 5-year track record feels rather lax and isn’t a sufficient enough gauge of quality. All in all, this is reflected in the bland overall performance of this fund.

Both ETFs came to the bourses on the same day, but note that stark contrast in their return profiles. Over the last 18 years, PID’s total return profile of 121%, is only 0.4x that of what PFM has delivered during the same period.

Crucially, from a capital appreciation angle, it’s fair to say that PID hasn’t made a great deal of progress. On a price basis, it has only managed to eke out high teen returns since 2005, with much of the returns being driven by the distribution angle. Speaking of distributions, it’s not as if this has set the world alight in recent years. Be it on a 3-year basis, or a 5-year basis, PID’s growth of its dividends has been rather abysmal at 0.65% and 0.59%, respectively.

PID's risk profile and its ability to juggle that and deliver suitable returns as well leaves much to be desired. Note that since its inception, the variability of PID’s monthly returns is almost 600bps higher (annualized) relative to the domestic dividend achievers.

Given a higher threshold of standard deviation, PID would need to generate a much superior excess return profile (over the risk-free rate), to justify the risk it takes, but it falls short here as well, as exemplified by a Sharpe ratio that is just one-fifth that of PFM’s corresponding figure.

Leave aside total deviation, and focus on just the harmful kind- downside deviation. Even here, PID doesn’t come across as a comforting vehicle with a poor Sortino ratio of just 0.059, as opposed to 0.279 for PFM.

Should You Buy PID Now?

As implied in the previous section, PID doesn’t have a lot of great qualities, but if you’re still insistent about taking a punt, here are a few other positive and negative factors to consider.

What could perhaps work in favor of PID is its heightened exposure to the Canadian terrain; a whopping 59% of the portfolio is based in this country alone! Janus Henderson, an asset management firm that tracks dividend trends across the globe, recently lifted the underlying global dividend growth forecast for the year to 5.3% from 5% and was particularly effusive about Canadian banks and energy stocks playing a part. As things stand, on an underlying basis, Canadian companies are outpacing their US counterparts when it comes to dividend growth (up by 6.65). Besides 95% of Canadian companies have increased their dividends or held them steady, and it looks like payouts this year could be set to hit record highs.

Whilst PID’s exposure to Canada bodes well, the earnings to valuation quotient for PID as a whole does not reflect well, against global stocks. As per Morningstar data, PID is currently priced at a little over 14 x P/E, more or less in line with the Vanguard Total World Stock ETF ( VT ). However, at that multiple, the holdings of PID are only poised to offer long-term earnings of less than 8%, whereas VT’s holdings could deliver double-digit earnings potential of nearly 11%.

Even as a mean-reversion trade, it does not look like PID’s portfolio will see too much of interest for those looking at global stocks. At the start of 2022 or before that, this thesis would have stood out, but as things stand, PID’s relative strength versus global stocks is hardly a breath away from the mid-point of its long-term range.

Then, even PID’s top sector holding- global utilities are unlikely to witness too much of flows relative to their US counterparts as the relative strength ratio of the two products are now roughly on par, quite unlike what it was in Q4 last year.

Then, as noted previously, from a price perspective, PID has traditionally not seen a great deal of progress over time, and it can be construed more as a trading play that chops around within a certain range. If one looks at PID’s monthly chart since the GFC, we can see that it has managed to recover well (upward-sloping support) from the lows seen in 2020 but is now not too far away from hitting the $20 pivot levels, which had previously served as resistance in 2008, 2014, and 2022. All things considered, we would be hesitant to stage an entry at this juncture.

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