Professionally speaking, for me the price an ETF is trading at is irrelevant. And before you do a backflip and go 'WTF!', here's why. The decision to allocate capital from a broader investment portfolio perspective starts at the asset class level to meet objectives, i.e. what is the optimum combination of equities, fixed interest/cash, property and alternatives. Once that is dialed in, we will look at the different combination of strategies in each of those asset classes (i.e. long, long/short, market neutral, leveraged, equity income etc). The we will look at what investment structures are available and will suit, either a managed fund or an ASX traded vehicle such as a LIC or ETF. Once that's done, we think about which particular investment to choose, so in this case, if a passively managed equity income strategy is required in an ETF format, which to choose. Based on each ETFs particulars and with reference to the rest of the investment portfolio, that's what drives the choice.
The current trading price is of no real relevance. Why? Because this then becomes a tactical decision about whether to go cash or equities. Trying to time this is generally fraught with danger. I know HC is predominantly a traders forum and many will disagree. But using ETFs and LICs is not like buying shares. Its about a play on either a fund managers skill or a portfolio of stocks generated by a rules based framework. Picking which ETF is right for your circumstances depends on what you are trying to achieve.
A long only equity income ETF will probably generate higher absolute returns over a market cycle, but will be more volatile. A Equity income ETF using a Buy-Write strategy will provide greater downside protection in volatile markets, but will typically give away upside in strong bull markets. You have to choose what suits you.
Differences between these ETFs can be summarised;
• AOD is a systematically driven portfolio with a strong bias to higher yielding stocks that pay fully franked dividends. AOD will structurally overweight these stocks, and short sell non-fully franked dividend paying stocks.
• YMAX uses derivatives (options) to generate additional income in addition to holding the top 20 companies listed on the ASX.
• Universe of coverage, for example RDV includes A-REITs as part of the investable universe whereas SYI and VHY do not.
• There is varied use of forward looking metrics as opposed to backward looking metrics.
• RDV includes franking credits as part of assessing a stock’s overall dividend yield whereas SYI and VHY do not.
• RDV and SYI assess dividend sustainability in addition to forecast dividend yield as part of their process, whilst VHY focuses purely on the forecast dividend yield
• DIV follows a process similar to UBS IQ Research Preferred Australian Share Fund (ETF) with respect to index construction. The difference with DIV is that the index construction includes a dividend income tilt as part of the process.
