2023-06-30 15:16:43 ET
Summary
- Capital Group Dividend Value ETF is an actively managed fund investing in dividend stocks.
- It is well-diversified across sectors, but quite concentrated in the top holdings.
- Valuation and quality metrics are better than in the large cap benchmark S&P 500.
- History is short, but promising: The CGDV ETF beats a number of passively managed value ETFs.
This article series aims at evaluating ETFs (exchange-traded funds) regarding past performance and portfolio metrics. Reviews with updated data are posted when necessary.
CGDV strategy and portfolio
Capital Group Dividend Value ETF ( CGDV ) is an actively managed ETF that started investing operations on 02/22/2022. It has a portfolio of 49 stocks, a 30-Day SEC Yield of 1.94%, and an expense ratio of 0.33%. Distributions are paid quarterly.
As described by Capital Group in the prospectus,
the fund invests at least 80% of its assets in dividend-paying common stocks of larger, more established companies domiciled in the United States with market capitalizations greater than $4.0 billion (...) The fund also ordinarily invests at least 90% of its equity assets in the stock of companies whose debt securities are rated at least investment grade (…) The fund may invest up to 10% of its assets in equity securities of larger companies domiciled outside the United States.
The portfolio is divided into segments managed by five individual managers, with a discretionary approach based on their professional judgement. Such an organization offers a lot of flexibility while mitigating risks. On the downside, the fund's strategy is a black box that cannot be duplicated or back-tested.
The fund invests mostly in U.S. companies (94% of equity value) and in large companies (about 80%). The portfolio is quite concentrated: the top 10 holdings, listed in the next table with valuation ratios, represent 41.6% of asset value. Exposure to each of the top three names is above 5%.
Ticker | Name | Weight (%) | P/E TTM | P/E fwd | P/Sales TTM | P/Book | P/Net Free Cash Flow | Yield % |
Broadcom Inc. | 6.72% | 27.26 | 20.53 | 10.51 | 16.74 | 37.88 | 2.13 | |
Microsoft Corp. | 5.94% | 36.32 | 34.83 | 12.05 | 12.85 | 65.76 | 0.81 | |
General Electric Co. | 5.48% | 14.46 | 52.70 | 1.60 | 3.73 | 28.89 | 0.30 | |
Carrier Global Corp. | 4.48% | 16.77 | 19.20 | 2.00 | 5.19 | 36.23 | 1.50 | |
Raytheon Technologies Corp. | 4.44% | 26.13 | 19.47 | 2.10 | 1.98 | N/A | 2.41 | |
American International Group, Inc. | 3.51% | 7.46 | 8.63 | 0.83 | 0.99 | 11.63 | 2.52 | |
Linde plc | 2.88% | 42.12 | 27.51 | 5.64 | 4.70 | 61.75 | 1.35 | |
Baker Hughes Co. | 2.76% | N/A | 20.19 | 1.45 | 2.17 | 63.85 | 2.42 | |
Abbott Laboratories | 2.75% | 32.73 | 24.48 | 4.54 | 5.10 | 54.57 | 1.89 | |
BTI * | British American Tobacco plc | 2.63% | 9.27 | 6.85 | 2.19 | 0.82 | 19.04 | 8.23 |
* U.S. ticker for convenience. The fund holds shares in the primary exchange.
The two heaviest sectors are technology and industrials, tie at 20.2% of assets. Then comes healthcare with 13.2%. Other sectors are below 8%. Compared to the large-cap benchmark SPDR® S&P 500 ETF Trust ( SPY ), CGDV overweights mostly industrials, energy, and utilities. It underweights technology, financials, consumer discretionary, and real estate. As a result, the fund is more diversified across sectors than SPY.
Valuation and quality
As expected, CGDV is cheaper than the S&P 500 regarding aggregate valuation ratios, reported in the table below.
CGDV | SPY | |
P/E | 17.17 | 21.5 |
P/Book | 2.76 | 3.75 |
P/Sales | 2.3 | 2.39 |
P/Cash Flow | 13.22 | 15.14 |
Data: Fidelity
In previous articles, I have shown how three factors may help cut the risk in a dividend portfolio: Return on Assets , Piotroski F-score , and Altman Z-score . In my ETF reviews, risky stocks are companies with at least 2 red flags among: bad Piotroski score, negative ROA, unsustainable payout ratio, bad or dubious Altman Z-score, excluding financials and real estate where these metrics are unreliable.
Out of 49 holdings, 10 are risky regarding these criteria, and they weigh 14.6% of asset value. This ratio is not very good, but it is acceptable. Based on my calculation of aggregate Altman Z-score, Piotroski F-score and ROA, CGDV is slightly superior to SPY regarding portfolio quality.
CGDV | SPY | |
Altman Z-score | 3.92 | 3.5 |
Piotroski F-score | 5.82 | 5.72 |
ROA % TTM | 9.23 | 7.44 |
Performance
I think it is more appropriate to compare CGDV to value funds than to dividend funds, because the yield is quite low. The next chart plots total returns since 2/28/2022 of CGDV, SPY, and five large and mid-cap value ETFs based on different underlying indexes:
- Fidelity Value Factor ETF ( FVAL ), reviewed here ,
- iShares S&P 500 Value ETF ( IVE ), reviewed here,
- iShares Russell 1000 Value ETF ( IWD ), reviewed here,
- Vanguard Value Index Fund ( VTV ),
- iShares MSCI USA Value Factor ETF ( VLUE ).
CGDV is the best performer, shortly ahead of the S&P 500 Value Index fund. In 2023 to date, CGDV also beats the other value funds, but it lags SPY by a short margin of 1%.
Takeaway
Capital Group Dividend Value ETF holds 49 dividend stocks based on the discretionary decisions of five portfolio managers. The portfolio is better balanced across sectors than the S&P 500, but it is quite concentrated in the top holdings. CGDV is slightly superior to the large-cap benchmark S&P 500 regarding both valuation and quality metrics. Capital Group Dividend Value ETF has a short, but promising, history: it has outperformed a number of passively managed value ETFs. Its main downside is the lack of transparency in the strategy.
For further details see:
CGDV: Valuation, Quality And Performance Are Promising