SMDV: Why You Should Pass On This 3% Yielding Small-Cap DGI ETF

seekingalpha06-03

DNY59 Investment Thesis The ProShares Russell 2000 Dividend Growers ETF (BATS:SMDV) is not a product I recommend for dividend growth investors. It's highly concentrated, with one quarter of its assets...

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It's highly concentrated, with one quarter of its assets...</p>\n\n<a href=\"https://seekingalpha.com/article/4697085-smdv-why-you-should-pass-on-this-3-percent-yielding-small-cap-dgi-etf\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","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>SMDV: Why You Should Pass On This 3% Yielding Small-Cap DGI ETF</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\">\nSMDV: Why You Should Pass On This 3% Yielding Small-Cap DGI ETF\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-03 18:39 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4697085-smdv-why-you-should-pass-on-this-3-percent-yielding-small-cap-dgi-etf><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>DNY59 Investment Thesis The ProShares Russell 2000 Dividend Growers ETF (BATS:SMDV) is not a product I recommend for dividend growth investors. It's highly concentrated, with one quarter of its assets...</p>\n\n<a href=\"https://seekingalpha.com/article/4697085-smdv-why-you-should-pass-on-this-3-percent-yielding-small-cap-dgi-etf\">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":"BK4588","symbol_name":"碎股","start_time":0,"source_url":"https://seekingalpha.com/article/4697085-smdv-why-you-should-pass-on-this-3-percent-yielding-small-cap-dgi-etf","article_id":"2440466569","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/508653481/image_508653481.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2440466569","pubTimestamp":1717411147,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"DNY59 Investment Thesis The ProShares Russell 2000 Dividend Growers ETF (BATS:SMDV) is not a product I recommend for dividend growth investors. It's highly concentrated, with one quarter of its assets","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4588":"碎股","BK4550":"红杉资本持仓","FDN":"First Trust Dow Jones Internet I","BK7095":"多种金属与采矿","IWM":"罗素2000指数ETF","DGRS":"WisdomTree U.S. SmallCap Dividen","OUSM":"ALPS O'Shares U.S. Small-Cap Quality Dividend ETF","DGI":"DigitalGlobe Inc","TWM":"罗素2000指数两倍做空ETF","BK4581":"高盛持仓","SMDV":"ProShares Russell 2000 Dividend Growers ETF","RWM":"罗素2000指数反向ETF","IWN":"罗素2000价值股指数ETF-iShares","TNA":"罗素2000指数三倍做多ETF-Direxion","IWO":"罗素2000成长股指数ETF","UWM":"罗素2000指数ETF两倍做多","BK4585":"ETF&股票定投概念","KRE":"区域银行指数ETF-SPDR KBW","TZA":"罗素2000指数三倍做空ETF","BK4534":"瑞士信贷持仓","SRTY":"罗素2000指数三倍做空ETF-ProShares","DES":"小盘高红利ETF-WisdomTree","BK4535":"淡马锡持仓","DES.AU":"DESOTO RESOURCES LTD"},"translate_title":"SMDV：为什么您应该放弃这只收益率为3%的小盘股DGI ETF","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DGI":1,"KRE":1,"IWM":1,"OUSM":1,"FDN":1,"DGRS":1,"DES.AU":1,"DES":1,"SMDV":1,"US3Y.BOND":0.76,"US30Y.BOND":0.76,"US2Y.BOND":0.76,"US7Y.BOND":0.76,"US12M.BOND":0.76,"US6M.BOND":0.76,"US5Y.BOND":0.76,"US10Y.BOND":0.76,"US912797FS14.BOND":0.6,"UWM":0.6,"US912797GB79.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6,"TZA":0.6,"TWM":0.6,"TNA":0.6,"SRTY":0.6,"RWM":0.6,"IWO":0.6,"IWN":0.6,"MRTYmain":0.6,"MNQmain":0.6},"content_text":"DNY59 Investment Thesis The ProShares Russell 2000 Dividend Growers ETF (BATS:SMDV) is not a product I recommend for dividend growth investors. It's highly concentrated, with one quarter of its assets assigned to Regional Banks. Despite its success at delivering double-digit dividend growth to shareholders over the last five years, SMDV's fundamentals related to growth, value, momentum, and sentiment are underwhelming. As a result, I expect it to underperform under normal circumstances. In this article, I will take you through its strategy, composition, and fundamentals, and in the end, I hope you'll agree SMDV is not worth owning. SMDV Overview Strategy Discussion and Sector Exposures Impact SMDV tracks the Russell 2000 Dividend Growth Index, selecting small-cap stocks that have raised dividends for at least ten consecutive years. The Index reconstitutes annually in June, and the selection universe currently includes about 160 stocks, far above the minimum 40 required by the Index provider. However, the Index provider places a 30% weight limit for each sector, and as shown below, the breakdown substantially favors Financials:  Communication Services: 3 (1.9%) Consumer Discretionary: 4 (2.5%) Consumer Staples: 8 (5.0%) Energy: 1 (0.6%) Financials: 75 (47.2%) Health Care: 2 (1.3%) Industrials: 27 (17.0%) Materials: 9 (5.7%) Real Estate: 5 (3.1%) Technology: 2 (1.3%) Utilities: 23 (14.5%)  This breakdown guarantees a large allocation to the Financials sector. As shown below, SMDV has 29.12% allocated compared to 25.16% and 19.22% for the WisdomTree U.S. SmallCap Dividend ETF (DES) and the WisdomTree U.S. SmallCap Quality Dividend Growth ETF (DGRS), respectively. Morningstar SMDV Fund Basics and Performance SMDV launched on February 3, 2015, and currently has $754.31 million in assets under management and a 0.40% expense ratio. This expense ratio is close to the 0.43% average for the 34 small-cap value ETFs I track. Meanwhile, DES and DGRS, which track two different Indexes managed by WisdomTree, have a slightly lower 0.38% expense ratio. Morningstar Since March 2015, SMDV has gained 90.56% compared to 75.08% and 106.21% for DES and DGRS, respectively. The results are pretty good, but what stands out is SMDV's lower standard deviation and stronger risk-adjusted returns. In particular, its downside risk-adjusted returns (Sortino Ratio) were superior to both peers, and its 24.71% maximum drawdown in Q1 2020 was much better. Portfolio Visualizer SMDV Analysis Fundamentals By Sub-Industry The following table highlights selected fundamental metrics for SMDV's top 25 sub-industries, totaling 82.89%. At the bottom, I've also included summary metrics for DES, DGRS, and the iShares Russell 2000 ETF (IWM). The Sunday Investor Here are five observations to consider: 1. SMDV's weighted average dividend yield, known as the Index yield, is 3.31%. After subtracting the ETF's 0.40% expense ratio, shareholders should net 2.91%, slightly better than its 2.76% trailing dividend yield. DES, DGRS, and IWM yield 3.12%, 2.07%, and 1.16% at current prices, so SMDV is quite competitive on income. Seeking Alpha has assigned it a \"C+\" Dividend Yield Grade, but that's compared to the median of all ETFs. When compared only to small-cap value ETFs, it's quite good. Seeking Alpha 2. The source of SMDV's high dividend yield is Regional Banks. The ETF holds 26 in this sub-industry with yields averaging 5.09%, but it's crucial to realize that income has been the only reason to own these stocks. They've declined in price by 18.77% over the last five years, and dividends paid were not enough to make up the difference (-1.29% total return). In addition, this return was worse than the 12.48% delivered by the equal-weighted SPDR S&P Regional Banking ETF (KRE) over this period. Portfolio Visualizer The Index needs an industry cap to complement its 30% sector cap. This would improve diversification and likely total returns. 3. SMDV's constituents have a weighted average 6.90% five-year dividend growth rate, which ranks #4/34 in the small-cap value category. This result is great, but I want to highlight that among dividend ETFs whose constituents yield 3% or more, its ranking slips to #16/43. The takeaway is that investors should consider how small caps might not be the optimal source of dividend growth. I view the segment best for finding unique growth opportunities. 4. Two years ago, I was wrong to predict that SMDV's weak growth rates would lead to slower dividend growth. Annual payout growth approached 14% in 2022 and 2023, and TTM dividend growth as of March 2024 is 12.9%. Seeking Alpha Still, SMDV's two-year total return ranks #22/31. Meanwhile, higher-beta funds like AVUV, outperformed substantially, and the ALPS O'Shares U.S. Small-Cap Quality Dividend ETF Shares (OUSM) demonstrated how defensive small-cap investors can limit risk with quality screens. In particular, OUSM's Index uses return on assets to assess the quality of its Financial sector holdings, which screened out all Regional Bank stocks during the March 2023 crisis. Even today, OUSM holds no stocks in this sub-industry. Portfolio Visualizer 5. Finally, I don't find SMDV's growth and valuation combination attractive. Its constituents offer minimal estimated earnings per share growth (2.43%) and trade at 19.29x forward earnings (15.67x harmonic weighted average), which isn't much cheaper than IWM. In addition, this multiple is aided by SMDV's high allocation to Financials, a known for its cheap valuations. After converting each constituent's Seeking Alpha Valuation Grades to a ten-point scale, SMDV's 4.93/10 value score ranks #28/34 in the small-cap value category. Investment Recommendation SMDV is one of the better low-volatile small-cap ETFs on the market. It also has an expected dividend yield close to 3%, more than double that of plain vanilla Index funds like IWM. However, it accomplishes this through excessive concentration to Regional Banks, a sub-industry with negative earnings expectations and five-year total returns.  Unfortunately, I don't expect this composition to change anytime soon. Nearly 50% of all U.S. small-cap dividend achievers are in the Financials sector, including 40% in Regional Banks, and the Index does not have a suitable sub-industry screen to improve diversification. As a result, I see weakness from a total returns perspective moving forward, and I do not recommend buying SMDV. 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":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","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":"4.29.2","shortVersion":"4.29.2","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/2440466569"}