DUHP: Dimensional's Quality-Focused ETF Is On My Buy List

seekingalpha05-22

DUHP is an actively-managed large-cap blend ETF emphasizing high-quality stocks, as measured by earnings relative to book value or assets. Expenses are 0.22% and DUHP has $5.66 billion in assets.DUHP ...

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Expenses are 0.22% and DUHP has $5.66 billion in assets.DUHP ...</p>\n\n<a href=\"https://seekingalpha.com/article/4694865-duhp-dimensionals-quality-focused-etf-is-on-my-buy-list\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>DUHP: Dimensional's Quality-Focused ETF Is On My Buy List</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nDUHP: Dimensional's Quality-Focused ETF Is On My Buy List\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-22 05:24 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4694865-duhp-dimensionals-quality-focused-etf-is-on-my-buy-list><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>DUHP is an actively-managed large-cap blend ETF emphasizing high-quality stocks, as measured by earnings relative to book value or assets. Expenses are 0.22% and DUHP has $5.66 billion in assets.DUHP ...</p>\n\n<a href=\"https://seekingalpha.com/article/4694865-duhp-dimensionals-quality-focused-etf-is-on-my-buy-list\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"PEP","symbol_name":"百事可乐","start_time":0,"source_url":"https://seekingalpha.com/article/4694865-duhp-dimensionals-quality-focused-etf-is-on-my-buy-list","article_id":"2437476654","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1493832785/image_1493832785.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2437476654","pubTimestamp":1716326678,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"DUHP is an actively-managed large-cap blend ETF emphasizing high-quality stocks, as measured by earnings relative to book value or assets. 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Expenses are 0.22% and DUHP has $5.66 billion in assets.DUHP is also broadly-diversified, with exposure to 85/160 GICS sub-industries. Total Magnificent Seven exposure is only 14.54%, as DUHP excludes Alphabet, Amazon, Meta Platforms, and Tesla.DUHP serves as an excellent complement to JQUA. With only 38% overlap, an equal-weight portfolio of these two ETFs is better-diversified than SPY while offering investors a slightly lower P/E.This article also includes DUHP's backfilled results to 2017 using DURPX, Dimensional's mutual fund that follows a similar strategy.   pepifotoInvestment Thesis This article initiates my coverage of the Dimensional US High Profitability ETF (NYSEARCA:DUHP), one of the highest-quality large-cap blend ETFs available. DUHP is also actively managed with a low 0.22% expense ratio and is an excellent complement to my favorite quality fund, the JPMorgan U.S. Quality Factor ETF (JQUA). In this article, I will examine the composition and fundamental differences between DUHP and JQUA, highlight the low 38% overlap between the two funds, and present the statistics of a hypothetical equal-weight portfolio that is not only better diversified than S&P 500 Index ETFs, but offers better value, too. I hope you enjoy the read. DUHP Overview Strategy Discussion DUHP is actively managed and, as such, does not follow an Index. However, it's a distinction without a difference in this case. According to its latest annual report, DUHP's portfolio turnover rate was 4% for the year ending October 2023 and 2% for the eight months ending October 2022. The fund launched on February 23, 2022, and managers have demonstrated the high conviction style I've come to expect from Dimensional. The 0.22% expense ratio is also reasonable, and the ETF has amassed $5.66 billion in assets. According to the prospectus, the Portfolio's design \"emphasizes long-term drivers of expected returns identified by the Advisor's research, while balancing risk through broad diversification across companies and sectors.\" Broad diversification is this statement's key takeaway, and for this reason, JQUA is DUHP's most direct competitor. While not divulging too much about the strategy and weighting scheme, DUHP's prospectus states how: 1. The Index selects from the top 1,000 U.S. stocks based on market capitalization. As of December 31, 2023, this figure was $9.96 billion. 2. An equity issuer is considered to have high profitability because it has high earnings or profits from operations in relation to its book value or assets. 3. The Advisor may consider market capitalization and price-book value to emphasize certain securities. Dimensional also provides some general information about the fund on its website. Relevant is DUHP's 1.05 Weighted Average Profitability Score, which is \"measured as operating income before depreciation and amortization minus interest expense, scaled by book.\" DUHP's score is highest among its suite of U.S. Equity ETFs. DimensionalPerformance Analysis DUHP launched in February 2022 and is closely related to the DFA US High Relatively Profitability Institutional Fund (DURPX), which Dimensional has operated since May 16, 2017. The two fund's performance charts since March 2022 reveal their similarities. Portfolio VisualizerBased on this chart, I'm comfortable using DURPX to backfill DUHP's returns. I've done this to generate the table below, which also includes JQUA and the SPDR S&P 500 ETF (SPY) as the two benchmarks I will explore today. The following statistics cover the period from December 1, 2017, to May 17, 2024. Portfolio VisualizerDUHP gained 124.76% over this period compared to 133.77% and 122.88% for JQUA and SPY, respectively. Notably, DUHP lost only 11.73% in 2022 compared to 18.17% for SPY. The potential to outperform in drawdowns is one reason why I like these types of well-diversified funds that usually have a slight value lean. DUHP and JQUA share this feature. DUHP Analysis Sector Exposures and Top Ten Holdings DUHP's sector exposures are listed below alongside JQUA, SPHQ, and SPY. Notice how DUHP overweights Industrials by 8.54% compared to SPY and underweights Communication Services by 8.25%. In contrast, JQUA's sector exposures are similar to SPY, while SPHQ leans heavily into Technology with 35.75% total exposure. MorningstarBelow are DUHP's top ten holdings, totaling 36.92% of the portfolio. They include Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA), but one key stock is Eli Lilly (LLY), which is not held by JQUA. LLY is unique for its 0.37 five-year beta, 22.61% estimated one-year sales growth rate, and 17.08% net income margin, which is higher than about 88% of all U.S. Health Care stocks. DimensionalAnother interesting note is how this list does not include any Industrials, despite the sector comprising 17.17% of the portfolio. The #12 and #13 holdings are Caterpillar (CAT) and Union Pacific (UNP) with 2.03% and 1.77% allocations followed by 36 others across 17 unique GICS sub-industries. DUHP Fundamentals By Sub-Industry Next is a table summarizing selected fundamental metrics for DUHP's top 25 sub-industries, which total 78.69% of the portfolio. This concentration level is higher than JQUA and SPY, whose top 25 sub-industries total 72.62% and 69.84%, but less than SPHQ's 88.65%. The Sunday InvestorHere are three additional observations to consider: 1. Using Seeking Alpha Profitability Grades, I calculated a 9.65/10 Profit Score for DUHP, slightly better than the 9.40/10 and 9.31/10 scores for JQUA and SPY. While it's behind SPHQ's 9.80/10 score, I'm still impressed because it's broadly diversified. It's easy to create a high-quality fund when you're only forced to hold a small number of stocks. However, DUHP and JQUA do so with 184 and 257 stocks and have at least some exposure to 85/160 and 92/160 GICS sub-industries. Meanwhile, SPHQ holds 100 stocks and covers 51 sub-industries, which is how it achieves its near perfect score. 2. DUHP has slightly higher weighted average net margins than JQUA (21.64% vs. 20.50%), but JQUA has the edge on free cash flow margins (21.28% vs. 18.28%). Still, DUHP's lower free cash flow margins are structure-related, as it holds less \"asset-light\" stocks in the Communications Services sector, where higher free cash flow margins are more common. Specifically, DUHP does not hold Alphabet (GOOGL) and Meta Platforms (META), which have margins of 17.31% and 24.62%, respectively. Instead, it allocates more to the \"asset-heavy\" Industrials sector, where margins are typically lower. 3. DUHP trades at 25.84x forward earnings using the simple weighted average method, 0.10 points less than JQUA. Similarly, its estimated sales and earnings growth rates are nearly identical, so there isn't much fundamentally separating these funds. As you scan through the different sub-industries, you'll notice the highest weights are assigned to growth stocks with high P/E's, but it's balanced nicely at the bottom with some defensive sub-industries. Overall, the result is an ETF with a slightly lower growth profile than SPY. Fund Overlap DUHP and JQUA have 38.32% overlap by weight, a remarkably low figure considering how well both ETFs are diversified. I've summarized the top ten overweighted and underweighted stocks for DUHP relative to JQUA below:  Eli Lilly (LLY): 4.94% vs. 0.00% = 4.94% Apple (AAPL): 5.25% vs. 2.10% = 3.15% Microsoft (MSFT): 4.97% vs. 1.98% = 2.99% PepsiCo (PEP): 2.44% vs. 0.00% = 2.44% Visa (V): 4.03% vs. 1.89% = 2.14% Nvidia (NVDA): 4.32% vs. 2.24% = 2.08% Caterpillar (CAT): 2.03% vs. 0.00% = 2.03% Texas Instruments (TXN): 1.75% vs. 0.00% = 1.75% IBM (IBM): 1.72% vs. 0.09% = 1.63% Oracle (ORCL): 1.40% vs. 0.00% = 1.40% Alphabet (GOOGL): 0.00% vs. 2.55% = -2.55% Meta Platforms (META): 0.00% vs. 2.52% = -2.52% Berkshire Hathaway (BRK.B): 0.00% vs. 1.97% = -1.97% Exxon Mobil (XOM): 0.00% vs. 1.70% = -1.70% Merck & Co. (MRK): 0.06% vs. 1.48% = -1.41% Procter & Gamble (PG): 0.37% vs. 1.58% = -1.21% Costco Wholesale (COST): 0.35% vs. 1.56% = -1.21% Salesforce (CRM): 0.00% vs. 1.19% = -1.19% Chevron (CVX): 0.00% vs. 1.00% = -1.00% Cisco Systems (CSCO): 0.00% vs. 0.92% = -0.92%  Since DUHP and JQUA complement each other reasonably well, I wanted to see what holding both would accomplish. An equal-weight portfolio generates A 341-stock portfolio with the following fundamental statistics relative to SPY: The Sunday InvestorThis hypothetical portfolio is quite solid. Its 1.03 five-year beta indicates similar volatility relative to SPY, and although it has a lower growth profile, that might be a good thing because it has only 12.97% allocated to the Magnificent Seven. Absent are Amazon (AMZN) and Tesla (TSLA), which trade at 40.57x and 68.99x forward earnings, and the portfolio's top 25 holdings total only 42.16%, an improvement over SPY's 47.01% figure. Investment Recommendation DUHP is a broadly diversified, quality-focused large-cap ETF with a 0.22% expense ratio and $5.66 billion in assets under management. Since 2017, DUHP and DURPX, Dimensional's similarly structured mutual fund, have delivered competitive risk-adjusted returns with the broader market and notably outperformed SPY by 6.44% in 2022, showcasing the managers' preference for selecting high-quality stocks with more attractive valuations.  DUHP is also an excellent complement to JQUA, my favorite quality-focused ETF. My analysis revealed only a 38% overlap by weight between the two and 17% less Magnificent Seven exposure (13% vs. 30%) than SPY. It's a smart way to reduce risk without sacrificing quality or diversification, and the slightly lower growth profile means you'll still be able to participate in most of the market's gains should the bull market continue. As a result, I'm comfortable rating DUHP a \"buy\", and I look forward to discussing this further in the comments section below. 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