What You May Have Missed This Week...
A look at SCHD's disappointing year, the power of long-term dividend growth strategies and a trio of durable all-weather ETFs.
In addition to the regular posts here on Substack, I also publish ETF research and notes over on my blog, ETF Focus.
In case you wanted to catch up on the latest research above and beyond what you’re reading here, this is a quick list of some of the most recent articles from the blog!
DGRW: This Quality Dividend Growth ETF Deserves More Recognition
A glaring concern is that most dividend ETFs, even with their high yields reinvested, often just match or lag behind the performance of S&P 500 index ETFs, which come as a disappointment to investors who are looking for both income and growth. When I took a closer look at the WisdomTree U.S. Quality Dividend Growth ETF (DGRW), I was pleasantly surprised to discover that this under-the-radar fund has historically outperformed the S&P 500. It's an exception that makes you sit up and take notice.
SCHD Has Gotten A Lot Of Hate In 2023. It's Completely Unwarranted.
If you’re an investor in dividend ETFs, you’ve no doubt heard about the Schwab U.S. Dividend Equity ETF (SCHD). If you were to do a straw poll of investors and ask them what their favorite dividend ETF is, I strongly suspect that SCHD would be the winner (and it might not even be close). It incorporates elements of dividend growth, dividend quality & high yield in its selection criteria and, since its inception in 2011, has amassed one of the best track records in the industry.
That is until 2023.
SCHY: SCHD's International Dividend Counterpart is Worth a Look
In previous analyses, I've given extensive coverage to the Schwab U.S. Dividend Equity ETF (SCHD), a domestic dividend focused ETF that has often drawn attention for its robust methodology and competitive historical returns. I've explored how I'd incorporate SCHD into a streamlined, "lazy" two-ETF dividend portfolio and discussed potential complementary ETFs that could further refine and balance such a strategy. However, despite the thoroughness of these analyses, there's been a conspicuous gap in one crucial area: international diversification.
Three “All-Weather” ETFs
As much as some investors get a kick out of seeking unique and return-generating trade ideas, I’d argue the layman investor would rather spend their time occupied with other things they enjoy. For these investors, finding investments that require minimal tactical allocation or constant rebalancing is key.
I would point towards three “all-weather” ETFs that investors could buy and hold, without much extra effort or thought.
With Treasury Bill Yields At 5%, Should The 60/40 Portfolio Now Be The 60/30/10 Portfolio?
It wasn’t that long ago that the 60/40 portfolio was declared dead. After a decades-long bull market in bonds that helped make the 60/40 portfolio one of the best investment strategies in the world, conditions changed when the Fed dropped the Fed Funds Rate to 0% during the financial crisis. That’s essentially the starting point for when investors began considering the “40” in the 60/40 portfolio to be dead money.
In reality, that wasn’t necessarily the case.
Maximizing Returns: Why This ETF's Size & Value Factor Strategy Has Been A Long-Term Winner
Factor investing has become a focal point for those looking to beat the market. Aside from leveraging and stock-picking—which come with their own sets of risks and limitations—factor investing offers a research-backed approach to outperforming the average market returns. This brings us to the Fama-French 5 Factor Model, which is a seminal framework in the world of finance. Developed by Eugene Fama and Kenneth French, this model suggests that five key factors—market risk, size, value, profitability, and investment—can explain a portfolio's returns over time. In simpler terms, it tells us that stocks with certain characteristics, like being small or undervalued, are more likely to offer higher returns.
Best Value ETFs: Now May Be The Time To Start Playing Value
2023 has been a surprisingly stellar year for growth stocks, corresponding to surging attention from investors on artificial intelligence (AI). Coming into the year, heightened uncertainty on monetary policy, political strife and stubborn inflation dominated headlines. Despite this, the year has shaped up to be a reasonably strong year for most equity investors, especially those overweight growth stocks.
On the other side of the coin are value stocks, which are stable, mature companies that are able to consistently generate profits and cash flows. Value stocks are not necessarily the cool kid in class, but possess greater stability and more consistent cash flow generation.
COWZ: Its Free Cash Flow Strategy Continues To Work For Investors
The summer of 2023 saw a flurry of activity from various ETF managers, each launching their own flavor of factor ETFs that focused on a specific financial metric: free cash flow. For instance, Global X ETFs rolled out the Global X U.S. Cash Flow Kings 100 ETF (FLOW) on July 12. Similarly on August 24, First Trust Advisors announced the launch of their First Trust S&P 500 Diversified Free Cash Flow ETF (FCFY).
While these launches may make it seem like a fresh trend, they are actually stepping into a niche that was effectively carved out by an older, established strategy. Enter the Pacer Cash Cows 100 ETF (COWZ), a factor ETF that has been offering investors a unique approach to value investing since its inception in December 2016.
This Dividend ETF That's Up 30% This Year Probably Isn't The One You Think
After a big 2022 that saw dividend stocks outperform the broader averages by double digits, it's been a complete flip in 2023. Tech, high beta and growth have taken over again leaving dividend ETFs with scraps in terms of returns. The Vanguard S&P 500 ETF (VOO) is up more than 17% this year, but the WisdomTree U.S. Total Dividend ETF (DTD), my benchmark for dividend stocks, is up only 4%. Some of the most popular dividend ETFs, including the Schwab U.S. Dividend Equity ETF (SCHD), are actually negative on the year.
Not all of them though. Surprisingly, the ones that are doing the best aren't even invested in the United States. They're invested overseas.