UBS has launched the UBS Global Quality Dividend Payers Index, a new proprietary gauge aimed at providing investors with exposure to 'high quality companies' with sustainable growth and profitability, and healthy balance sheets. The Swiss bank is planning to launch a number of structured products linked to the index, including delta one and leverage certificates as well as Constant Proportion Portfolio Technique-based (CPPT) structures.
UBS's European head of equities structuring in London, Eric Bensoussan, said that firms with healthy balance sheets, positive cash flows and sustainable growth which pay high dividends tend to be signalling good health as well as willingness and ability to return capital to shareholders: "This is a widely accepted concept which sparked the creation of a number of indices seeking to invest into high dividend paying stocks," he said. "However, these have a major drawback in that they can both pick and over-weight stocks whose high yields are the result of the company's share price having dropped dramatically, i.e. these indices have a bias to invest into more distressed assets. We've employed a dual concept of high quality companies and high dividend yields, to create a more 'sound' investment which avoids distressed assets."
The new UBS Global Quality Dividend Payers Index is tradable equity index with sector weightings benchmarked to the MSCI AC World to ensure diversification across industries.
The UBS Global Quality Dividend Payers Index consists of 30 strong dividend paying companies selected from the UBS global equity coverage universe. Stocks are ranked by UBS Global Equity Strategy based on metrics which can be broadly categorised as growth, leverage, valuation and dividends. The final stock components are screened for tradability and liquidity, and weighting for diversification.
Christopher Ferrarone, a UBS strategist said that investing only in companies with a high return on equity and high margins will result in a portfolio skewed toward defensive sectors: "What we are trying to do here is not just invest in defensive sectors but build a globally diversified portfolio of companies. We take a whole series of metrics, and we score all of the companies that fall under our coverage - around 3,300 companies," he said. "We rank on 20 different metrics that fall under profitability and valuation, growth, leverage and dividends. So we do look at return on equity, but we also consider valuation."