DIVO - DIVO: A Fund With Good Balance That Could Outperform In An Inflationary Environment

Summary

• The Amplify CWP Enhanced Dividend Fund has a good balance of cyclical and more conservative investments, and this ETF has performed well since its inception in late 2016.
• This Fund should continue to deliver solid income and total returns in the current inflationary environment we are in.
• DIVO is well managed, the covered call strategy this actively managed fund uses has helped generate additional income without capping upside and total returns.

Investing in today's market requires more precision. The S&P 500 and most of the broader indexes aren't simply going up double-digits every year anymore. With the Fed raising rates, prices still at very high levels, and growth rates in the US and most major economies stagnating, this market favors individuals who are finding specific companies or more narrowly tailored investments for the conditions we are in.

One fund that has done very well in the current inflationary environment we are is the Amplify CWP Enhanced Dividend Income ETF ( DIVO ).

DIVO has performed well very well since its inception in 2016, and this fund has also outperformed the S&P 500 and most of its peers since inflation began to significantly accelerate in early 2021.

DIVO has also significantly outperformed most of its peers that offer the same buy and write strategy of selling covered calls, such as the Global X Nasdaq 100 Collar 95 ( QYLD ) and the First Trust Nasdaq Buy and Write Income ETF ( FTQI ).

The Amplify CWP Enhanced Dividend Fund is an ETF that is built for investors focused more on dividends and income, so comparing the total returns of this investment to benchmarks such as the S&P 500 ( SPY ) and the Nasdaq 100 ( QQQ ) is misleading. Still, DIVO is up 17.88% over the last 3 years, while the S&P 500 is up 23.72% during the same time period, this fund has offered solid total returns as well. DIVO also did pay out more income during those 3 years than the S&P 500. The S&P 500 did outperform DIVO by nearly 28% over the last 5 years, but DIVO is up 20% during that timeframe. DIVO paid out on average over 5% a year during that period of time as well.

DIVO has good balance on several levels. This fund has exposure to more aggressive growth stocks in cyclical sectors, but also a good significant amount of more conservative holdings in the health care and consumer defensive sectors. DIVO also allocates to the best performing stocks in most sectors this ETF allocates capital to. DIVO's holdings are 20.75% health care, 17.13% financials, 12.07% energy, 11.94% consumer cyclicals, 9.86% consumer defensives, 9.7% industrials, 6.72% basic materials, 6.22% technology, 3.29% utilities, and 2.32% communication. The five biggest holdings of this fund are Microsoft ( MSFT ), UnitedHealth Group ( UNH ), Home Depot ( HD ), Visa ( V ), and McDonald's ( MCD ). This fund allocates almost exclusively to large cap companies, and no one individual company comprises more than 5.4% of the fund.

DIVO currently has 10% of the fund's cash reserved to use for the covered call strategy that the managers use to create additional income. This fund guarantees to investors that allocations will always be at 80% invested in equities, and this ETF will also never invest more than 25% of the fund's assets to any one sector. The expense ratio of this fund is .55%, the yield is 5.21%, and the assets under management are $2.7 billion. DIVO pays out monthly dividends. This is an actively managed fund.

The income and dividend growth of DIVO has been impressive since the fund's inception in 2016. This fund has a 3-year dividend growth rate of 6.11%, and a 5-year dividend growth rate of 13.7%. DIVO pays out 2-3% in dividends from the companies owned by the fund, and another 2-3% of the payouts come from income derived from the covered calls that the managers sell at their discretion against the equities held in this ETF. The strong total returns this fund has delivered since its inception in 2016 show that the managers have done a good job of selling calls to increase income without capping total returns. DIVO is up 44% since the fund started in December of 2016, and the fund has consistently paid out yields of more than 4.5% annually.

DIVO is also well positioned for the current inflationary environment we are in because of the overweight position this fund has in the energy and commodity sectors, in addition to the significant exposure to cyclical sectors this exchange traded fund has as well. Nearly seventy percent of this fund's assets are allocated to cyclical sectors such as the financials, consumer cyclicals, and industrials. The energy sector is also positioned strongly to pay and increase dividend payouts. DIVO has been less volatile than the S&P 500 primarily because of the fund's diversified holdings and this ETF's significant exposure to health care and consumer staple sectors. The standard deviation of this fund is 14.4%.

All investments have risks, and this fund is significantly underweight the tech sector, which is why the Nasdaq 100 has significantly outperformed DIVO since the fund was started in 2016. DIVO would also likely underperform if inflation rates were to fall significantly, because this fund is overweight commodities. DIVO is significantly overweight the financial sector as well, so this ETF does have more exposure to potential new regulations or systemic issues that may impact the banking industry.

Overall, DIVO is a well diversified fund with good balance. Investing is much harder now than it was for most of the last decade. With inflation still at high levels, rates rising, and growth rates anemic, this is a market that favors more precise investing strategies. DIVO is a fund that offers investors good balance. This fund has delivered strong capital gains and income since its inception in 2016, and DIVO is well positioned to continue to outperform in a normal or an inflationary economic environment.

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