BGIG: Should You Buy Bahl & Gaynor's Active Income Growth ETF?

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BGIG is an actively managed large-cap value ETF offering investors dividend growth, capital appreciation, and downside protection for a 0.45% annual fee.Launched in September 2023, I relied on the ...

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Comparisons were made with DGRW, VIG, DGRO, and LEAD.Fundamentally, BGIG seems to deliver on its objectives. However, the DGI space is crowded, and low-cost alternatives look just as solid. Moreover, BGIG's estimated 2.15% yield might not attract investors.Overall, I don't recommend buying BGIG, but I also don't think it will underperform its peers by too much over the long run.   AndreyPopov Investment Thesis The Bahl & Gaynor Income Growth ETF (NYSEARCA:BGIG) is an actively managed large-cap value fund offering investors the potential for dividend growth, capital appreciation, and downside protection. Its 0.45% expense ratio is hefty, but I found BGIG's fundamentals competitive with established passive peers like the WisdomTree U.S. Quality Dividend Growth ETF (DGRW) and the Vanguard Dividend Appreciation ETF (VIG). Below, you'll find a performance analysis, which includes the results of BGIG's mutual fund counterpart that follows the same strategy, and a fundamentals-based comparison with DGRW, VIG, the iShares Core Dividend Growth ETF (DGRO), and the Siren DIVCON Leaders Dividend ETF (LEAD). I hope you enjoy the read. BGIG Overview Strategy Discussion With the tagline \"Dividends Pay Dividends,\" the team of Bill Bahl and Vere Gaynor employ bottom-up fundamental research to identify companies with strong dividend growth potential. According to BGIG's Fact Sheet, the team also looks to design a portfolio with a \"harmonious balance of yield and growth to achieve a portfolio that aims to reduce capital risk.\" Immediately, I was drawn to this feature, as I find compromise is often the best solution. High-yielding funds satisfy income investors but can lag substantially on total returns. In contrast, dividend-themed funds with low dividend yields seem out of place and fail to attract their supposed target audience: dividend investors. Bahl & Gaynor As is typical for a large-cap value fund, BGIG also includes stocks with attractive valuation features, but it's evaluated at the portfolio level, meaning that not all selections are necessarily \"value stocks\". Finally, BGIG attempts to differentiate itself with a low-volatility feature. The average five-year beta for ETFs in this category is 0.96, so it will be interesting to see whether BGIG features any improvement on that factor. I chose DGRW, VIG, DGRO, and LEAD as comparators because each are relatively low-yielding dividend funds, which indicate they're higher on the value spectrum and possibly venturing into \"blend\" territory. Still, it's a tough category. For example, despite LEAD's solid returns, it has only attracted $56 million in assets under management, possibly because of its high 0.43% expense ratio. VIG and DGRO are the most popular and also have the lowest expense ratio, while DGRW is in the middle with a 0.28% annual fee. Seeking Alpha BGIG's assets under management are already up to $147 million, but I suspect some of this is cannibalization from its well-established mutual funds, represented by the Bahl & Gaynor Income Growth Fund Institutional Shares (AFNIX). BGIG and AFNIX have delivered nearly identical returns since October 2023, with the main difference being BGIG's expense ratio advantage (0.45% vs. 0.79%). Portfolio Visualizer Performance To provide additional performance information, I backfilled BGIG's returns with AFNIX's, giving us a history dating back to August 2012. With reinvested dividends, BGIG/AFNIX gained an annualized 10.49% compared to 12.47% for VIG, a difference bigger than the expense ratio differences between the two. Portfolio Visualizer Since July 2014, a $10,000 investment in BGIG/AFNIX would grow to $24,837 ten years later for a 148.37% total return. VIG, DGRO, and DGRW gained 190.82%, 196.96%, and 237.09% over this period, indicating these were far better choices. I also want to highlight how BGIG's standard deviation was only slightly lower than these peers, as shown above and at this link. Portfolio Visualizer BGIG Analysis Composition vs. Peer Group BGIG holds 49 U.S. stocks, with its top 25 accounting for 75.13% of the fund by weight. I've listed them below, showing that the ETF's composition differs from its peers. For example, Broadcom (AVGO) and Eli Lilly (LLY) are its largest holdings, which you might find unusual, given their 1.23% and 0.56% indicated dividend yields. The Sunday Investor That said, the other dividend growth ETFs also hold low-yielding stocks. DGRW holds Microsoft (MSFT) at 7.99%, while VIG holds Microsoft, Apple (AAPL), and Broadcom, each at over 4%. Still, BGIG is the best diversified from a sector perspective, with its largest allocation in Technology at 19.40%. The Sunday Investor Author's Note: The Sector Diversification Score is calculated by summing the absolute value variances by sector and comparing it against a perfectly diversified (i.e., equal-weight-by-sector) portfolio and a perfectly undiversified (i.e., single-sector) portfolio. Scores are on a ten-point scale. BGIG Fundamentals The following table highlights selected fundamental metrics for BGIG's top 25 holdings. I've also included summary metrics for DGRW, VIG, DGRO, and LEAD at the bottom. The Sunday Investor Here are four observations: 1. BGIG's standout metric is its 0.83 five-year beta, a surprising find, given how similar its historical standard deviation was compared to these peers. I suspected these holdings were new, but the annual report provided for AFNIX indicated annual portfolio turnover rates between 12-16% for the last five years. To be sure, beta and standard deviation measure different things, but I expected a stronger relationship. The takeaway is that BGIG does not do much better than these peers regarding its downside protection objective. 2. BGIG has a 2.60% weighted average forward dividend yield, but shareholders should only net approximately 2.15% after expenses. Still, that's more than DGRW and VIG's 1.53% and 1.77% estimated net yields and only slightly behind DGRO's 2.36%. As for LEAD, its 0.88% expected yield reveals a considerable mismatch between the ETF's title and its composition. 3. Another one of BGIG's objectives is to deliver strong dividend growth, but its dividend growth features don't look any better than these peers. For example, its constituents have a weighted average 9.34% five-year dividend growth rate, similar to DGRW, VIG, and DGRO, and 3% less than LEAD. In addition, BGIG's 8.14/10 sector-adjusted Dividend Growth Score, which I derived using Seeking Alpha Factor Grades, doesn't stand out. All things equal, investors should opt for the lower-cost passive funds. 4. BGIG has good quality and growth features, evidenced by its 9.27/10 sector-adjusted profit score and 6-8% estimated one-year sales and earnings per share growth rates. I've highlighted these and other related metrics in the table below, as I want to emphasize how important it is that dividend and value-focused funds also rank highly on quality and growth to avoid long-term underperformance. I think BGIG does that well, mainly by including some growth stocks that have led markets over the last year, and I conclude that BGIG has a solid shot at delivering competitive long-term capital appreciation. The Sunday Investor Investment Recommendation  BGIG is an actively managed ETF aiming to provide investors with dividend growth, downside protection, and capital appreciation. My analysis reveals it accomplishes these objectives reasonably well, but BGIG's low-cost passive peers look just as fundamentally sound. In addition, the historical returns of BGIG's mutual fund counterpart were disappointing, even after adjusting for its higher expense ratio. Therefore, I don't see a reason to buy BGIG today, so I have assigned it a neutral \"hold\" rating. 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":"4.29.1","shortVersion":"4.29.1","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/2451135687"}