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Passive Australian ETFs are overweight resources stocks despite dividend cuts, Goldman Sachs analysts warn

Brendon Thorne | Bloomberg | Getty Images

Yield-seekers beware, there are dangers lurking in Australia's dividend exchange-traded funds (ETFs), Goldman Sachs has warned.

Passively managed ETFs are heavily overweight commodity companies, the bank's analysts said, at a time when the stocks -- and the company earnings -- are largely tanking in line with commodities prices.

"Despite cuts of over 50 percent to consensus earnings forecasts for virtually all commodity-related firms over the past year, the passively managed dividend funds we track still have, on average, 25 percent of their ASX exposures in either commodity producers or their supply chain," Goldman said in a note.

"Relative to the ASX 200, this is by far their largest overweight position."

That's a red flag for anyone counting on dividend yields, as the commodity rout has weighed heavily on earnings at resources players.

Mining giant Rio Tinto last week cut its dividend and abandoned its policy of maintaining or increasing its the payout each year. It said this year's dividend would be at least $1.10 a share, sharply down from its $2.15-a-share payout in 2015.

Many analysts expect Rio rival BHP Billiton to follow suit.

Standard & Poor's put BHP Billiton's credit ratings on negative watch this month, with a downgrade dependent in part on the company's dividend policy. But the ratings agency took Rio Tinto off negative watch after it modified its policy on shareholder payouts.

"We expect more resource-related companies to follow the lead of Rio Tinto," Goldman said in the note released last week.

That has large implications for Australia's dividend ETFs. Dividend ETFs usually invest in a basket of high dividend-paying equities, which means they may hold resources shares based on their trailing dividend yields, or the level of dividends the companies paid in the past.

As those dividends fail to materialize, the ETFs will be forced to sell the equities, leaving investors vulnerable to both drop in the value of their ETF shares as well as a lower payout from the ETF.

"At present, Rio is the fifth most well held stock across these funds. As dividend cuts may take a while to be represented in many of the commonly used dividend indexes that are tracked by investors, we expect selling of resource stocks may be somewhat delayed," Goldman said.

While Goldman noted that the 12 dividend ETFs it tracks held only about 30 basis-points worth of the ASX 200 market capitalization, the analysts said there was a larger pool of managed-income strategies also sitting on significant resource exposure, in part because of the industry's high trailing dividend yield.

Others are also somewhat concerned about relying too heavily on past dividend payouts when holding Australia's dividend ETFs.

"It's a very risky situation for dividend investors to be investing into these funds on trailing yields," Scott Phillips, an adviser at Motley Fool, said. "That's a mistake of following a robotic, mechanized trading strategy."

He's not alone in pointing to problems with the passive management approach in the funds.

"Are the mandates too tightly held and therefore causing funds to dive into things not likely to deliver," asked Evan Lucas, market strategist at spreadbetter IG. "The mandates at least (may need) to be rewritten to allow forecast speculation."

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—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1