In this paper, we use the medium horizon variant of Axioma's newly released Australian fundamental factor model (AXAU4 - MH) to analyse and compare four Smart Beta ETFs listed on the Australian Stock Exchange (ASX).
All four contain the investment objective to harvest the high-dividend yield factor premium in ASX listed shares for their investors.
Given that all the funds have less than 1% of their weight outside the S&P/ASX 200 (the Index), we will be analysing these ETFs in active space against that index as well as a pure dividend yield factor return as defined by a factor mimicking portfolio.
Additionally, we have constructed an optimized long-only, fully invested, and unconstrained portfolio (AXUN) with the sole objective of maximizing our exposure to the Dividend Yield factor in our model with a constraint to remain below 4% (average of the four ETFs) of active risk against the index (which doubles as our investment universe in our monthly rebalancing).
The reason for not constraining this strategy on non-target factors is to let the optimizer pursue dividend yield exposure wherever it may be, allowing the risk model to determine the appropriate risk/return tradeoff.
By doing this we hope to learn more about the nature of this factor premium in Australia and the company it keeps by looking at the active style and sector exposures selected by the optimizer.