QDEF: FlexShares' Defensive Dividend ETF Fails To Stand Out

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QDEF relies on a proprietary model to optimize a portfolio based on quality, beta, and dividend yield. At current prices, QDEF yields 1.98%.QDEF's expense ratio is 0.37%, which isn't a deal-breaker on...

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At current prices, QDEF yields 1.98%.QDEF's expense ratio is 0.37%, which isn't a deal-breaker on...</p>\n\n<a href=\"https://seekingalpha.com/article/4696605-qdef-flexshares-defensive-dividend-etf-fails-to-stand-out\">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>QDEF: FlexShares' Defensive Dividend ETF Fails To Stand Out</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\">\nQDEF: FlexShares' Defensive Dividend ETF Fails To Stand Out\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-31 08:27 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4696605-qdef-flexshares-defensive-dividend-etf-fails-to-stand-out><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>QDEF relies on a proprietary model to optimize a portfolio based on quality, beta, and dividend yield. At current prices, QDEF yields 1.98%.QDEF's expense ratio is 0.37%, which isn't a deal-breaker on...</p>\n\n<a href=\"https://seekingalpha.com/article/4696605-qdef-flexshares-defensive-dividend-etf-fails-to-stand-out\">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":"LU1316542783.SGD","symbol_name":"Janus Henderson Horizon Global Technology Leaders A2 SGD","start_time":0,"source_url":"https://seekingalpha.com/article/4696605-qdef-flexshares-defensive-dividend-etf-fails-to-stand-out","article_id":"2439598693","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1466377607/image_1466377607.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2439598693","pubTimestamp":1717115250,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"QDEF relies on a proprietary model to optimize a portfolio based on quality, beta, and dividend yield. At current prices, QDEF yields 1.98%.QDEF's expense ratio is 0.37%, which isn't a deal-breaker on","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU1316542783.SGD":"Janus Henderson Horizon Global Technology Leaders A2 SGD","LU1571399168.USD":"ALLSPRING GLOBAL LONG/SHORT EQUITY \"IP\" (USD) ACC","IE00BLSP4239.USD":"Legg Mason ClearBridge - Tactical Dividend Income A Mdis USD Plus","DGRO":"iShares Core Dividend Growth ETF","LU0557290698.USD":"施罗德环球可持续增长基金","IE00BFSS7M15.SGD":"Janus Henderson Balanced A Acc SGD-H","LU0957808578.USD":"THREADNEEDLE (LUX) GLOBAL TECHNOLOGY \"ZU\" (USD) ACC","MSFT":"微软","LU0234570918.USD":"高盛全球核心股票组合Acc Close","NVDA":"英伟达","LU0068578508.USD":"First Eagle Amundi International Cl AU-C USD","LU1839511570.USD":"WELLS FARGO GLOBAL FACTOR ENHANCED EQUITY \"I\" (USD) ACC","LU0642271901.SGD":"Janus Henderson Horizon Global Technology Leaders A2 SGD-H","LU1435385759.SGD":"Natixis Loomis Sayles US Growth Equity RA SGD-H","QDEF":"FlexShares Quality Dividend Defe","LU0056508442.USD":"贝莱德世界科技基金A2","AVGO":"博通","FDN":"First Trust Dow Jones Internet I","AAPL":"苹果","IE00BMPRXR70.SGD":"Neuberger Berman 5G Connectivity A Acc SGD-H","LU0820561909.HKD":"ALLIANZ INCOME AND GROWTH \"AM\" (HKD) INC","IE00B7SZLL34.SGD":"Legg Mason ClearBridge - Value A Acc SGD-H","LU0109392836.USD":"富兰克林科技股A","LU1804176565.USD":"EASTSPRING INV GLOBAL GROWTH EQUITY \"A\" (USD) ACC","LU1670627923.USD":"M&G (LUX) NORTH AMERICAN DIVIDEND \"A\" (USD) ACC","LU0353189763.USD":"ALLSPRING  US ALL CAP GROWTH FUND \"I\" (USD) ACC","VIG":"股利增长指数ETF-Vanguard","BK4512":"苹果概念","LU0289739343.SGD":"SUSTAINABLE GLOBAL THEMATIC PORTFOLIO \"A\" (SGD) ACC","LU0823414478.USD":"法巴经典能源转换基金","META":"Meta Platforms","LU0130102774.USD":"Natixis Harris Associates US Equity RA USD","LU1814569148.SGD":"WELLINGTON GLOBAL QUALITY GROWTH \"D\" (SGDHDG) ACC","LU1670711040.USD":"M&G (LUX) GLOBAL DIVIDEND \"A\" (USD) ACC","LU0289960550.SGD":"AB FCP I - GLOBAL EQUITY BLEND PORTFOLIO 'A' (SGD) ACC","IE00B1BXHZ80.USD":"Legg Mason ClearBridge - US Appreciation A Acc USD","LU0648001328.SGD":"Natixis Harris Associates US Equity RA SGD","LU0444971666.USD":"天利全球科技基金","LU1548497426.USD":"安联环球人工智能AT Acc","LU1244550221.USD":"FRANKLIN GLOBAL MULTI-ASSET  INCOME \"A\" (USDHEDGED) INC (M)","IE00BFSS8Q28.SGD":"Janus Henderson Balanced A Inc SGD-H","LU0786609619.USD":"高盛全球千禧一代股票组合Acc","LU0130103400.USD":"Natixis Harris Associates Global Equity RA USD","GOOGL":"谷歌A","LU1244550577.SGD":"FTIF - Franklin Global Multi-Asset Income A (Mdis) SGD-H1","BK4515":"5G概念","GOOG":"谷歌","LU0354030438.USD":"富国美国大盘成长基金Cl A Acc","LU1244550494.USD":"FRANKLIN GLOBAL MULTI-ASSET INCOME \"A\" (USDHEDGED) ACC"},"translate_title":"QDEF：FlexShares的防御性股息ETF未能脱颖而出","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AVGO":1,"VIG":1,"QDEF":1,"NVDA":1,"MSFT":1,"META":1,"GOOGL":1,"AAPL":1,"FDN":1,"DGRO":1,"GOOG":0.74},"content_text":"QDEF relies on a proprietary model to optimize a portfolio based on quality, beta, and dividend yield. At current prices, QDEF yields 1.98%.QDEF's expense ratio is 0.37%, which isn't a deal-breaker on its own. However, QDEF's fundamentals aren't as strong as VIG's and arguably, DGRO's, both of which are lower-cost options.The Index's security constraints result in high allocations to low-yielding mega-cap stocks like Apple, Microsoft, Nvidia, and potentially Nvidia, come August. Technology exposure is currently 30%.This composition diminishes QDEF's defensive capabilities. While it should outperform its dividend peers in growth markets, I expect it to do the opposite in a rotation to value.   Sebastian Gorczowski/iStock via Getty Images Investment Thesis The FlexShares Quality Dividend Defensive Index Fund (NYSEARCA:QDEF) was one of the top-performing large-cap value ETFs in recent years. However, that's only because it's not as defensive as its name indicates. My fundamental analysis reveals it's one of the most growth-oriented in its category, and since there are already several low-cost alternatives that offer the same, I see little reason to pay its 0.37% annual fee. As a result, I've assigned a neutral \"hold\" rating to QDEF, and I look forward to explaining why in further detail below. QDEF Overview Strategy Discussion QDEF launched on December 14, 2012, and has a 0.37% expense ratio and $363 million in assets under management. It tracks the Northern Trust Quality Dividend Defensive Index, which the Index provider describes as follows: The Northern Trust Quality Dividend Defensive Index is designed to provide exposure to a high-quality income-oriented universe of long-only U.S. equity securities, with an emphasis on long-term capital growth and a targeted overall beta that is generally between 0.5 to 1.0 times that of the Northern Trust 1250 Index (the parent index). Companies included in the index are selected based on expected dividend payment and fundamental factors such as profitability, management expertise, and cash flow.\" The Index provider uses a proprietary scoring model to assess a company's quality and aims to realize a dividend yield above the benchmark Index. In addition, the Index provider manages systematic (market) risk with the following constraints:  Security Weight (+/- 5% vs. benchmark) Industry Weight (+/- 10% vs. benchmark) Sector Weight (+/- 6% vs. benchmark) Turnover: 25% maximum on each rebalancing date  The Indexes reconstitute four times annually on the last business day in February, May, August, and November, so the turnover constraint is quite generous. However, the sector constraint means QDEF will still have a healthy allocation to Technology stocks. As of May 30, 2024, it was 30%. Let's look closer at the fund's composition next, as I believe these constraints limit how QDEF's \"defensive\" capabilities. Sector Exposures and Top Ten Holdings The following table highlights QDEF's sector exposures alongside the Vanguard Dividend Appreciation ETF (VIG) and the iShares Core Dividend Growth ETF (DGRO). Despite their focus on dividend growth, VIG and DGRO share several similarities with QDEF, namely their higher position on the value scale. Morningstar Arguably, QDEF is the least defensive of the three. In addition to 7-12% more exposure to Technology stocks, QDEF also underweights Consumer Staples by 2-3%, a sector known for its defensive capabilities. QDEF's top ten holdings include Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), and Meta Platforms (META), all of which pay dividends. Their high weightings likely relate, in part, to the 5% security constraint mentioned earlier. FlexShares I have little doubt that if Amazon (AMZN) and Tesla (TSLA) paid dividends, they would also be in the Index. As for Alphabet (GOOGL), the company will pay its first dividend to shareholders on record on June 10, 2024, so I anticipate it will get added at the August reconstitution. The takeaway is that the Index's constraints have huge implications, and because the country's largest companies are mostly growth-oriented, the Index's defensive capabilities are limited. QDEF Analysis The following table highlights selected fundamental metrics for QDEF's top 25 holdings, totaling 55.47% of the portfolio (cash-adjusted). I've also included summary metrics for VIG and DGRO in the bottom rows. The Sunday Investor I have four observations: 1. The median five-year beta for large-cap value ETFs and large-cap dividend ETFs is 0.97 and 0.93, respectively, demonstrating how it's not unusual for dividend stocks to be slightly less volatile. At 0.89, QDEF's beta is lower than most peers, but not by much, and the reason is its high allocations to Apple, Nvidia, and Broadcom (AVGO). Even looking at its track record since July 2014, QDEF's \"standard deviation,\" \"worst year,\" and \"maximum drawdown\" figures don't stand out as impressive. Portfolio Visualizer 2. QDEF's 4.98% allocation to Nvidia is the source of the fund's relatively high 8.40% estimated EPS growth rate. Had the stock not been included, QDEF's earnings growth rate would be 6.15%, 1% less than VIG, which excludes the stock. While QDEF's forward P/E would drop to 23.93x, it's still more expensive than VIG, so I don't think it offers good value. 3. QDEF's Index yield, calculated as the weighted average dividend yield of all its members, is 2.35%. After subtracting the fund's 0.37% expense ratio, shareholders should net 1.98% compared to 1.85% and 2.41% for VIG and DGRO, respectively. In addition, the current constituents for all three ETFs have similar 9-10% five-year dividend growth rates, so there isn't much separating them from a DGI perspective. 4. QDEF has impressive profitability metrics compared to VIG and DGRO, including:  Return on Assets: 13.04% vs. 10.44% vs. 8.63% Return on Equity: 29.29% vs. 28.25% vs. 24.74% Return on Total Capital: 19.01% vs. 15.66% vs. 13.67%  However, these metrics relate to QDEF's composition. Recall that QDEF overweights Technology, an asset-light sector, by 7-12%. Asset-light companies typically have high margins, so comparing the quality of an ETF's selections against its sector peers is essential. That's where Seeking Alpha Factor Grades can assist, and after converting each grade to a number on a ten-point scale, QDEF's score is 9.16/10 compared to 9.11/10 for VIG. Again, the difference is slight. Investment Recommendation  QDEF's 0.37% expense ratio is too high, and its growth and valuation combination is no better than that of VIG, a similar-yielding fund with a 0.06% expense ratio. While QDEF has a solid ten-year track record, it's mostly because it's a \"value-light\" fund with a forward P/E that's third-highest in the large-cap value category. Finally, its security constraints mean Alphabet is a likely addition in August, which would result in a lower dividend yield and less downside protection. QDEF might track a Defensive Dividend Index, but there are cheaper and better alternatives, so I don't recommend buying. Thank you for reading, and I look forward to your comments below.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2439598693"}