Elston
  • WHO WE ARE
    • About
    • Contact
    • Events
    • Press
  • WHAT WE DO
    • Portfolio Solutions >
      • Our Portfolios
      • Custom Portfolios
    • Fund Solutions >
      • Our Funds
      • Custom Funds
    • Index Solutions >
      • Our indices
      • Custom Indices
    • SPECIALIST STRATEGIES >
      • Money Market Funds
      • Retirement Income Solutions
      • Retirement Portfolios
      • Adaptive Portfolios
      • UK Equity Income
      • Multi-Asset Income
      • Liquid Real Assets
      • Dynamic Risk Parity
      • Gold and Precious Metals
      • Enabling Net Zero
    • Supporting Advisers >
      • Investment Committee Support
      • Regulatory Support
    • CPD
  • WHO WE HELP
    • Financial Advisers
    • Discretionary Managers
    • Fund Providers
  • Insights

Insights.

UK Equity Income ETFs - Cyclical or Defensive?

28/12/2017

 
  • In the search for yield, UK Equity Income is a key component of client portfolios.
  • There are a number of UK Equity Income ETFs to choose from, each tracking a different methodology.
  • This study looks at the different index methodologies’ impact on Sector Allocation for investors that focus on the business cycle.

UK Equity Income ETF Choices
Investors have a choice of UK Equity Income index strategies, each with different risk-return characteristics, weightings methodologies and factor tilts.

Portfolio managers and advisers considering a UK Equity Income ETF should understand the differences of each to inform their selection process.

In the first of a series of studies of this key sector, we have done a sector analysis of London-listed UK Equity Income ETFs, to understand their inherent characteristics relative to the UK main equity index, the FTSE 100.

For these studies, we have analysed the indices and ETFs detailed in Fig.1.

Fig. 1: UK Equity Income Indices & ETFs vs HSBC FTSE 100 UCITS ETF (LON:HUKX)
Picture
​Methodology impact on sector allocation
The result of the application of various index methodologies to the UK equities opportunity set materially impacts the sector exposures of available Equity Income ETFs.

In some cases, sector caps form part of the index rules.  In other cases they do not.
For example, the FTSE100’s bias to Energy and Financials is well documented.  For some Equity Income strategies, such biases are mitigated or even eliminated.

Selecting the right Equity Income ETF for the business cycle
For investors that focus on the business cycle, we have analysed the available UK Equity Income ETFs by GICS sectors, and classified those GICS sectors into two broad groups – Cyclicals and Defensives.

This enables us to rank UK Equity Income ETFs by their exposure to the business cycle.
On this basis, investors wanting access to UK Equity Income with a Cyclical bias (coloured red in Fig.2. below), should consider (in order) LON:WUKD, LON:IUKD, and LON:HUKX.

Conversely, investors wanting access to UK Equity Income with a Defensive bias (coloured grey in Fig.2. below), should consider (in order) LON:DOSH, LON:UKDV and LON:ZILK.

Fig. 2: UK Equity Income ETFs by Sector Allocation vs HSBC FTSE 100 UCITS ETF (LON:HUKX)
Picture
Conclusion
There is more to UK Equity Income than yield alone, by understanding the look-through sector exposures of the available UK Equity Income ETFs, investors can make more informed decisions as regards ETF selection that is consistent with their preferences, and client needs.

NOTICES
I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.  I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.

This article has been written for a US and UK audience.  Tickers are shown for corresponding and/or similar ETFs prefixed by the relevant exchange code, e.g. “NYSEARCA:” (NYSE Arca Exchange) for US readers; “LON:” (London Stock Exchange) for UK readers.  For research purposes/market commentary only, does not constitute an investment recommendation or advice, and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.  This blog reflects the views of the author and does not necessarily reflect the views of Elston Consulting, its clients or affiliates.  For information and disclaimers, please see www.elstonconsulting.co.uk

Photo credit: N/A; Chart credit: Elston Consulting; Table credit: Elston Consulting

All product names, logos, and brands are property of their respective owners. All company, product and service names used in this website are for identification purposes only. Use of these names, logos, and brands does not imply endorsement.

Chart data is as at 30-Nov-17

does sustainable investing reduce returns?

4/12/2017

 

    ELSTON RESEARCH

    insights inform solutions

    Get our weekly newsletter

    Categories

    All
    All Weather Portfolio
    Alternative Assets
    Alternative Strategies
    Bonds
    Business Practice
    Equity Income
    Equity Sectors
    ESG
    ETFs
    Evidence Based Investing
    Factor Investing
    Gold & Precious Metals
    Guide To Investing
    Index Investing
    Inflation
    Macro
    MULTI ASSET
    Multi Asset Income
    Net Zero
    Permanent Portfolio
    Portfolio Construction
    Private Markets
    Real Assets
    Retirement Investing
    Risk Parity
    Thematic Investing
    Value Factor

    Archives

    October 2023
    September 2023
    August 2023
    July 2023
    June 2023
    May 2023
    April 2023
    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    September 2019
    June 2019
    April 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    July 2017
    May 2017
    March 2017
    February 2017
    January 2017
    November 2016
    October 2016
    September 2016
    July 2016
    June 2016
    May 2016
    February 2016
    January 2016
    June 2015
    January 2014
    June 2012

    RSS Feed

Company

Home
About
Terms of Use
​​​Contact
​
​Events
​
Press

Solutions

​​Insights
​​​Research Service
​Research Library
Portfolio Analytics
​Our Portfolios
Custom Portfolios
​Retirement Portfolio
Our Funds
Custom Funds
​Retirement Funds
Our Indices
​Custom Indices
Retirement Indices

Services

CIRP Development
Regulatory Research
​
​​CPD

By client type:
For Advisers
For Discretionary Managers
​For Asset Managers
For Asset Owners


© COPYRIGHT 2012-23. ALL RIGHTS RESERVED.
  • WHO WE ARE
    • About
    • Contact
    • Events
    • Press
  • WHAT WE DO
    • Portfolio Solutions >
      • Our Portfolios
      • Custom Portfolios
    • Fund Solutions >
      • Our Funds
      • Custom Funds
    • Index Solutions >
      • Our indices
      • Custom Indices
    • SPECIALIST STRATEGIES >
      • Money Market Funds
      • Retirement Income Solutions
      • Retirement Portfolios
      • Adaptive Portfolios
      • UK Equity Income
      • Multi-Asset Income
      • Liquid Real Assets
      • Dynamic Risk Parity
      • Gold and Precious Metals
      • Enabling Net Zero
    • Supporting Advisers >
      • Investment Committee Support
      • Regulatory Support
    • CPD
  • WHO WE HELP
    • Financial Advisers
    • Discretionary Managers
    • Fund Providers
  • Insights