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I only look at Dividend Aristocrats (ETF NOBL) with some curiosity. Some of the Aristocrats are known for playing games by raising div by a few cents only, or timing quarterly increases so that every calendar year seems to have annual increases. When they get into some trouble, they slash dividend without thinking much that they were dividend Aristocrats.
That applies to WBA that slashed its dividend by almost half to "strengthen long-term balance sheet and cash position".
I try to avoid any strategy based on some “formula”. Many funds do that to some extent. Dividend Aristocrats / Low Volatility Stocks included. I’d include some of the major equity index funds in that category as well, although many here would disagree.
Problem is these approaches make logical sense when first conceived. May run hot for many years or even decades. A lot of money is made. A lot of money flows in thinking they’ve found a safe steady performer. Great if you know when to get out. But the last ones to buy before the approach or scheme stumbles get burned. Worse, they may “buy-down” believing because the same formula worked for so long, the price decline represents a good buying opportunity.
I glean these thoughts from some of the things Howard Marks mentions in “The Most Important Thing.” But they are not meant to represent Marks’ views.
Dividend-factor is a very crowded field. The related ETFs fall into 3 broad categories - current-dividend (VYM, etc), dividend-growth (VIG, etc), dividend-blend (SCHD, etc).
I am OK with dividend-blend but not so much with the extremes of high-dividend or dividend-growth (Aristocrats/NOBL are an example).
Buy low, sell high. Which funds aren't based on a formula?
I think of the formulas as theses, though not in the academic definition of the word. I would not invest in a fund if the prospectus could not coherently express the rationale, formula, thesis, approach, what have you, behind their choices. I would not invest in a fund that does not apply its formula reasonably consistently.
Are there any funds based on the idea of throwing what would now be virtual darts at virtual stock pages? Been about 40 years since I read Random Walk. I think that's where I got the idea.
If the market is going up, most theses will likely do well enough for you, if you understand why you bought it in the first place. If the market is going down, almost everything looks dreary. But utes and staples, two hoary formulas, did all right for me in 2022.
Should we wave bye-bye to the the Fama-French three factor model? How many times have you heard that small caps and value are dead? None the less, since inception in March of 2008, the formula behind RWJ has outperformed the mighty 500 formula.
I'm no fan of quants. But back in the day they were generally marketed on the notion that they had some secret formula in a black box that they could not share due to something, something, something. In which case, the prospectus might look something like this:
The XYZ fund is firmly rooted in the time-tested principle of magical thinking. We believe that the sponsor can reasonably expect to line it's pockets, and reward shareholders of the sponsor, at the expense of gullible investors.
Most actively managed ones. I think broad discretion (stated in percentage ranges) in the prospectus helps. Different firms are noted for different investment philosophies. Dodge and Cox and Leuthold come to mind. That’s fine. Just don’t tie the manager down to a specific scheme - “So easy even a cave man could do it”.
I didn’t say people shouldn’t invest in those types of formula-based funds - just that it’s something I avoid. I’m at a very advanced late middle-age. But always I’ve leaned more to avoiding big losses than in making the highest possible return.
" time tested magical thinking...". Too funny @wabac. lol
Wasn't there a fund years ago that was very successful in that it assigned placeholder identifiers for each stock, only looking at financial metrics/performance and took the bias of actually knowing which company it was... I guess those who look at Brand strength would disagree but again I recall this was an outperformer
please share if you know a fund (incl ETF) that targets companies that grew divi every year for at least 5 but not for more than 10 yrs and are not bottom or top quintile dividend payers. Call them Junior Div Aristocrats.
P.S.: my quick search did not result in any ETFs meeting the above criteria, I found DGRW (Quality Div Growth) an interesting Div ETF. I own the div ETF CGDV (an active fund) but I might go with DGRW for any new $$$ Div strategy - for its lower potential for cap gain distribution and better suited for taxable accounts. Two year old CGDV already has $7B AUM and with its American funds reputation, it might just become too big for its own good.
Would you be able to briefly note the differences in how JQUA and QUAL define quality? Which traits (profitability, earnings stability, capital structure, growth in profitability, etc.) are prioritized and which metrics (return on equity, debt to equity, EPS growth, etc.) are used for evaluation? Thank you.
@BaluBalu, PEY & SCHD look back 10 years. FDL (M*) looks back 5 years. Those are just a few that made it through to my watch lists that are based on looking back.
Wisdom Tree has some interesting dividend strategies that aren't reliant on looking back at fixed periods of time.
In dividend growth, I am looking for something that would not lean Value. I like active funds for Value. MOAT covers large cap and midcap Value for me and I supplement that with VSMIX (VSCAX), an Invesco fund.
I do not keep my research notes and as such I will not be able to answer your questions without doing the research again. I figure it will take you the same (or less) amount of time as it would take me to read their methodologies. I remember QUAL had half as many stocks in its portfolio as JQUA and leans larger cap and growthy but tends to be more volatile. I have QUAL in a taxable account and so switching is not an option for me. Also, I am probably biased in favor of JPM asset management over Blackrock stuff.
@BaluBalu, hard to beat DGRW or VDIGX for the growthier side of dividend strategies. If someone comes along to tell me what I've missed, I won't complain.
I have added DIVB to my equity fund watch list. It appears to be a growthier version of SYLD.
Comments
Problem is these approaches make logical sense when first conceived. May run hot for many years or even decades. A lot of money is made. A lot of money flows in thinking they’ve found a safe steady performer. Great if you know when to get out. But the last ones to buy before the approach or scheme stumbles get burned. Worse, they may “buy-down” believing because the same formula worked for so long, the price decline represents a good buying opportunity.
I glean these thoughts from some of the things Howard Marks mentions in “The Most Important Thing.” But they are not meant to represent Marks’ views.
Truth.
Dividend-factor is a very crowded field. The related ETFs fall into 3 broad categories - current-dividend (VYM, etc), dividend-growth (VIG, etc), dividend-blend (SCHD, etc).
I am OK with dividend-blend but not so much with the extremes of high-dividend or dividend-growth (Aristocrats/NOBL are an example).
I think of the formulas as theses, though not in the academic definition of the word. I would not invest in a fund if the prospectus could not coherently express the rationale, formula, thesis, approach, what have you, behind their choices. I would not invest in a fund that does not apply its formula reasonably consistently.
Are there any funds based on the idea of throwing what would now be virtual darts at virtual stock pages? Been about 40 years since I read Random Walk. I think that's where I got the idea.
If the market is going up, most theses will likely do well enough for you, if you understand why you bought it in the first place. If the market is going down, almost everything looks dreary. But utes and staples, two hoary formulas, did all right for me in 2022.
Should we wave bye-bye to the the Fama-French three factor model? How many times have you heard that small caps and value are dead? None the less, since inception in March of 2008, the formula behind RWJ has outperformed the mighty 500 formula.
I'm no fan of quants. But back in the day they were generally marketed on the notion that they had some secret formula in a black box that they could not share due to something, something, something. In which case, the prospectus might look something like this:
Most actively managed ones. I think broad discretion (stated in percentage ranges) in the prospectus helps. Different firms are noted for different investment philosophies. Dodge and Cox and Leuthold come to mind. That’s fine. Just don’t tie the manager down to a specific scheme - “So easy even a cave man could do it”.
I didn’t say people shouldn’t invest in those types of formula-based funds - just that it’s something I avoid. I’m at a very advanced late middle-age.
It’s all good. Whatever floats your boat.
The distinction between the two may be in the eye of the beholder.
Wasn't there a fund years ago that was very successful in that it assigned placeholder identifiers for each stock, only looking at financial metrics/performance and took the bias of actually knowing which company it was... I guess those who look at Brand strength would disagree but again I recall this was an outperformer
P.S.: my quick search did not result in any ETFs meeting the above criteria, I found DGRW (Quality Div Growth) an interesting Div ETF. I own the div ETF CGDV (an active fund) but I might go with DGRW for any new $$$ Div strategy - for its lower potential for cap gain distribution and better suited for taxable accounts. Two year old CGDV already has $7B AUM and with its American funds reputation, it might just become too big for its own good.
nonresponsive to your query above, but have you compared JQUA with any of these mentioned?
Would you be able to briefly note the differences in how JQUA and QUAL define quality?
Which traits (profitability, earnings stability, capital structure, growth in profitability, etc.)
are prioritized and which metrics (return on equity, debt to equity, EPS growth, etc.)
are used for evaluation?
Thank you.
Wisdom Tree has some interesting dividend strategies that aren't reliant on looking back at fixed periods of time.
In dividend growth, I am looking for something that would not lean Value. I like active funds for Value. MOAT covers large cap and midcap Value for me and I supplement that with VSMIX (VSCAX), an Invesco fund.
@Observant1,
I do not keep my research notes and as such I will not be able to answer your questions without doing the research again. I figure it will take you the same (or less) amount of time as it would take me to read their methodologies. I remember QUAL had half as many stocks in its portfolio as JQUA and leans larger cap and growthy but tends to be more volatile. I have QUAL in a taxable account and so switching is not an option for me. Also, I am probably biased in favor of JPM asset management over Blackrock stuff.
QUAL.
JQUA
@BaluBalu, hard to beat DGRW or VDIGX for the growthier side of dividend strategies. If someone comes along to tell me what I've missed, I won't complain.
I have added DIVB to my equity fund watch list. It appears to be a growthier version of SYLD.