# International ETF dividend players SDIV - QDXU



## bleagues (Sep 24, 2013)

Just wondering if anyone else out there holds these? Your thoughts? 

I'm looking to purchase in my margin account. I have no room in my RRSP or TFSA.

Is there something equivalent here in Canada besides RID?

I'm really looking for an international dividend player that is not to heavily focused on the US market. 

HAZ & CYH are close, but have a heavy US weighting. RID is the only Canadian based ETF that I can find that fits my criteria, but it has had a lacklustre year with returns so far in the 3.5% range with a very small $85M in assets


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## gardner (Feb 13, 2014)

I have no suggestions, but SDIV is new to me and I had a quick poke around at what its up to. I like the idea behind it -- basically a global dividend yield chaser. As with yield chasing strategies it seems to have a bit of a mixed bag. There's some gems in there that I would like to be able to hold -- like Telstra -- and some questionable issues. Many of the holdings have what I consider excessive payout ratios, above 90% up to 250%.

There is a small % of eligible Canadian dividends that you would give up the tax status on, but why not just go ahead and hold SDIV in your non-registered US$ account? The dividend would be taxed as income and you'd get credit for the US withholding tax. The overseas foreign withholding taxes were never going to be recoverable anyhow.


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## warp (Sep 4, 2010)

For whatever its worth I have owned DWX for a few years, and its been ok,

Remember that there will be US withholding taxes of 15% if owned in a cash account, (like me)

I have tried to get a straight answer, even from the ETF provider in the US, if the US ETF pays withholding taxes when they get the divs paid to them from their Europe holdings etc, and THEN charge US witholding taxes on top when they pass these divs on to us....but can never get an answer to this question.


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## OnlyMyOpinion (Sep 1, 2013)

I think most(?) of us would be biased toward Canadian dividends in our non-sheltered account (dividend tax credit) and consider our international etf in that account to be intended for capital growth - but to each their own. 
You might also consider a large multinational with substantial international exposure such as P&G that grows their (US) dividend?


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## gardner (Feb 13, 2014)

warp said:


> I have tried to get a straight answer, even from the ETF provider in the US, if the US ETF pays withholding taxes when they get the divs paid to them from their Europe holdings etc, and THEN charge US witholding taxes on top when they pass these divs on to us....but can never get an answer to this question.


This is the best info I've seen:

http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/
Also see the linked document in that article.


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## warp (Sep 4, 2010)

gardner said:


> This is the best info I've seen:
> 
> http://canadiancouchpotato.com/2014/09/12/foreign-withholding-taxes-in-international-equity-etfs/
> Also see the linked document in that article.


Thanks for the info, Gardener....I have read that page before...but it still does not answer my question.

I hold DWX, the US ETF directly, in a cash account. This ETF holds foreign stocks, NOT US stocks.
When the foreign companies pay a dividend to the US ETF, I want to know if a foreign tax is with-held.
The % would depend on each separate div received from each holding in the ETF depending on which country it is domiciled. I CANNOT get a straight answer to this question.

When these divs are passed on to me...the US withholds 15%.

One other point is that if indeed the US or Canadian ETF provider pays ANY foreign taxes on dividends, they are NOT reported as being paid by ME, the actual owner of the individual foreign shares through the ownership of the ETF. This means that I cannot use these foreign taxes paid when filing my Canadian tax returns, even though I was the one actually paying them. 

I have considered that it is a dirty little secret that the ETF provider, either Can or American, uses these foreign taxes paid to reduce their own taxes, even though the ETF holders actually paid these taxes.


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## avrex (Nov 14, 2010)

warp said:


> I hold DWX, the US ETF directly, in a cash account. This ETF holds foreign stocks, NOT US stocks.
> When the foreign companies pay a dividend to the US ETF, I want to know if a foreign tax is with-held.


Yes, I believe that foreign country withholding tax rates are applied on each of the individual foreign stocks. 
This is the *1st level* of withholding tax. It reduces the dividend amount received by this ETF.




warp said:


> When these divs are passed on to me...the US withholds 15%.
> 
> One other point is that if indeed the US or Canadian ETF provider pays ANY foreign taxes on dividends, they are NOT reported as being paid by ME, the actual owner of the individual foreign shares through the ownership of the ETF.


This is the *2nd level* of withholding tax. 
After the 1st level has been applied, the remaining dividend amount, will now have a US 15% withholding tax applied to it.



warp said:


> This means that I cannot use these foreign taxes paid when filing my Canadian tax returns, even though I was the one actually paying them.


You can't do anything about the 1st level of withholding tax. (i.e. you can't claim any tax credit.)

However, when you hold this ETF in a taxable account, you can get some of this 2nd level back, by applying for the Foreign Tax Credit on your Canadian tax return.


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## avrex (Nov 14, 2010)

I found the diagram that illustrates what I said above.


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## Namael (Jul 14, 2013)

So when you file your taxes with something like TurboTax, does the program automatically calculate the level 2 foreign tax credit or is it something you have to do yourself?


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## cashinstinct (Apr 4, 2009)

Namael said:


> So when you file your taxes with something like TurboTax, does the program automatically calculate the level 2 foreign tax credit or is it something you have to do yourself?


My understanding:
The level 2 tax will appear on your T3-T5 slip... so you can claim it back.

You will not see Level 1.


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## avrex (Nov 14, 2010)

That is correct.
You will never see Level 1.


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## dime (Jun 20, 2013)

I hold some SDIV that I picked up during the "taper tantrum" in late spring of 2013. The yield was just too attractive. Great diversification with over 100 holdings, monthly distribution, global diversification across many sectors (30 % in USA however). The expense ratio is higher than a cheap Vanguard ETF at .58% but I've yet to find a lower cost competitor with similar qualitites.


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## warp (Sep 4, 2010)

I looked into SDIV a couple of years ago.

I read some things about it that were concerning....including that they hold many "high" dividend payers, with lousy metrics in terms of payout ratios , earnings etc, that may cause them to cut the dividend. No-one says that this will happen for sure though.

As well I did not like the highish fees.

Also consider that this ETF has about 10% of its holdings in Canadian stocks.....which means you will lose the div tax credit, ( if held in a cash account), and you will be paying withholding taxes on these Canadian company dividends, even though you are a Canadian citizen,


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## humble_pie (Jun 7, 2009)

on a hunch i looked up SDIV.

... SDIV doesn't own shares, apart from a few ADRs. It's one of those new closet index funds that are proliferating everywhere. They say they own shares but when one drills down into their prospectuses, it turns out that they're allowed to hold indexes only but zero shares.

some indexes are so exotic & far-fetched one has no clue what can be backing them, if anything.

SDIV owns an index manufactured by a seven-year-old german firm named Solactive. It specializes in custom-built indexes. Solactive is owned & operated by what appear to be 2 young whiz kids with very little experience in finance between them, although it's possible they possess a lot of math smarts, who is to say based on their experience to date.

so far, Solactive's indexing business has led them to alliances with the karachi, dubai, kyrgyzstan & shenzhen stock markets, plus - everyone will be happy to hear - none other than the Stuttgart stock exchange which has lately become so dear to our hearts in cmf threads.

there are increasing numbers of ETFs that are abandoning traditional stock holdings these days & converting to index holdings. The fund managers don't seem to be willing to tell investors about this. Their frontline representatives are never trained to discuss this issue, therefore unfortunately they often deny it.

a well-known example in canada is iShares' XIC, which recently lowered its MER to something like half a percentage point. Now, there are something like 243 individual canadian stocks reportedly *held* in XIC. The last half of these are mostly small, illiquid, thinly-traded venture exchange type shares.

there is no way any fund manager could "balance" a fund with this kind of profile for a MER of one-half of one per cent. The custodial costs alone, what with all that swan-diving into & out of the fund (custodians charge for these adjustments to inventory) would easily amount to 2-3% per annum. Plus all those thinly-traded securities in the tail half of XIC are not even liquid, therefore impossible to "balance" frequently except at shocking losses, due to the big spreads that prevail in illiquid canadian markets.

i could go on & on, but i won't. This is not a concept that CMF forum members seem to be ready to hear. Like other canadian investors, they seem to want to cling to their notions that their ETFs are holding - in very secure & reputable custody - all those actual shares that they claim they are holding.

so for now i am just launching the hypothesis that many of these too-good-to-be-true ETFs are closet index funds that are only pretending they hold real, actual, bona fide, expensive-to-administer exchange-traded common stocks.

but in fact what they are holding is a cheap derivative index, with probably some bank swapping involved for the dividend proxy payments that will boost the distributions.


from the SDIV prospectus:

http://www.globalxfunds.com/SDIV/SUMPROS

_PRINCIPAL INVESTMENT STRATEGIES

The Underlying Index is sponsored by an organization (“Index Provider”) that is independent of the Fund and Global X Management Company LLC, the investment adviser for the Fund (“Adviser”). The Index Provider determines the relative weightings of the securities in the Underlying Index and publishes information regarding the market value of the Underlying Index. The Fund’s Index Provider is Solactive AG.

... The Fund generally will use a replication strategy. A replication strategy is an indexing strategy that involves investing in the securities of the Underlying Index in approximately the same proportions as in the Underlying Index.

However, the Fund may utilize a representative sampling strategy with respect to the Underlying Index when a replication strategy might be detrimental to shareholders, such as when there are practical difficulties or substantial costs involved in compiling a portfolio of equity securities to follow the Underlying Index, in instances in which a security in the Underlying Index becomes temporarily illiquid, unavailable or less liquid, or as a result of legal restrictions or limitations (such as tax diversification requirements) that apply to the Fund but not the Underlying Index.
_


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## gardner (Feb 13, 2014)

humble_pie said:


> SDIV owns an index manufactured by a seven-year-old german firm named Solactive.


I think it's worse that that.
http://www.solactive.com/indexing-en/indices/equity/solactive-indices/?index=DE000SLA0SD9



> Solactive has been granted a license by Global X Management Company LLC to use SuperDividend™. SuperDividend™ is a trademark of Global X Management Company LLC.


Maybe it's only the name, but it reads like Solaticive is putting some independent index window-dressing on something that is really 100% Global X.

I made a list of all of the stocks named in the index and there are some that look good, based on yield, PE, payout ratio and cap. I would be very happy to be able to hold telstra and some of the Australian banks; total SA; some of the english financials; french and german utilities.

View attachment sdiv.zip
-- zipped CSV


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## humble_pie (Jun 7, 2009)

possibly even worse yet

here's the list of SDIV "top components" in its base index from the Factsheet in your link. These may be high-yielding stocks but they are fairly obscure. I'm not impressed.

i also question whether, following the representational sampling strategy which is permitted according to its prospectus, SDIV owns any stocks at all. Or does it just own an interest in the german-run index?
.


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## PuckiTwo (Oct 26, 2011)

Somebody who understands more about it than I do should look at this loooong list of Solactive Indices. Looks as if they create indices by the minute. http://www.solactive.com/de/indexing/indizes/equity/solactive-indizes/. They call themselves "German multi-asset-class provider ....focussing on tailor-made indices"... http://www.solactive.com/about-us/; 


> Solactive now calculates 1,000 indices for over 100 clients in Europe, America and Asia. Approximately 20 billion USD are invested in products linked to indices calculated by Solactive globally, primarily via 125 ETFs. Solactive now ranks third in the US, in terms of ETFs linked to its indices.*





> Solactive is a comprehensive service provider in the index business. This starts with the development of individual index solutions across all asset classes and index types, and extends to index calculation and dissemination as well as performance reportings. A unique level of quickness and flexibility distinguishes us in the industry. For example, our state-of-the-art IT allows clients to set up indices directly in our platform and to publish them to all important data vendors in a matter of minutes. As a full service provider we cover equity, fixed income, funds, derivatives, currencies etc. in our indices.


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## PuckiTwo (Oct 26, 2011)

I googled a bit and found a longish interview with these guys on a German money forum. If I have time I will translate parts. However, one question was:

For which kind of products are they (the indices) used?

Answer from the person who according to him he is responsible for stock indices): We developed the Buyback Index together with the Société Générale. The Index is being used as basis for Swaps, Optionen (Options) and Zertifikate". Both of the new Guru Indices were created for Global X Funds in the USA and are listed as ETFs on the NYSE Arca. Der Mittelstands-Index (is a German term for midsize companies) was licensed by Deutsche Bank and investable in Germany thru an ETF from db-X trackers (a Deutsche Bank affiliate?).
Disclaimer: I can not guarantee for the correctness of the translation

However, in other paragraphs he is saying that they are "creating/designing" the indices and one of their advantage is that they can create them really fast and customize them to a special request.


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## bleagues (Sep 24, 2013)

Thanks for the great info on SDIV and the different level of taxes. 

I have come upon another ETF that I think may be a better fit, that being WDIV.

The fund objective:
The SPDR® S&P® Global Dividend ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return of the S&P® Global Dividend Aristocrats Index.

WDIV has an expense ratio of .4%, lower than SDIV's .58%. 

WDIV unfortunately is thinly traded, and has not nearly as many net assets.


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