DCOR: Low-Cost Total Market ETF Substitutes Quality For Value

seekingalpha07-30

DCOR is an actively managed total market fund with a low 0.14% expense ratio. Its objective is long-term capital appreciation and is benchmarked against the Russell 3000 Index.The portfolio currently ...

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Its objective is long-term capital appreciation and is benchmarked against the Russell 3000 Index.The portfolio currently ...</p>\n\n<a href=\"https://seekingalpha.com/article/4707855-dcor-low-cost-total-market-etf-substitutes-quality-for-value\">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>DCOR: Low-Cost Total Market ETF Substitutes Quality For Value</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\">\nDCOR: Low-Cost Total Market ETF Substitutes Quality For Value\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-30 12:23 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4707855-dcor-low-cost-total-market-etf-substitutes-quality-for-value><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>DCOR is an actively managed total market fund with a low 0.14% expense ratio. Its objective is long-term capital appreciation and is benchmarked against the Russell 3000 Index.The portfolio currently ...</p>\n\n<a href=\"https://seekingalpha.com/article/4707855-dcor-low-cost-total-market-etf-substitutes-quality-for-value\">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":"VLO","symbol_name":"瓦莱罗能源","start_time":0,"source_url":"https://seekingalpha.com/article/4707855-dcor-low-cost-total-market-etf-substitutes-quality-for-value","article_id":"2455356675","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2087206100/image_2087206100.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2455356675","pubTimestamp":1722313385,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"DCOR is an actively managed total market fund with a low 0.14% expense ratio. 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Its objective is long-term capital appreciation and is benchmarked against the Russell 3000 Index.The portfolio currently has a slight value tilt, though this comes at the expense of quality. Still, the weight adjustments are only minor, and Magnificent Seven exposure totals 22%.Adjusted for current weights, ten stocks have contributed 60% of the portfolio's three-year price gains, indicating DCOR still has room to decline substantially if the market broadening continues.As an alternative, I will suggest a higher-quality ETF that's less volatile and better prepared for such a correction, given its relatively low 38% overlap with SPY.Dimensional has an admirable long-term track record, so it can replace total market ETFs like ITOT and VTI. However, with overlap approaching 80%, it's not a good substitute.   FreshSplash Investment Thesis This article initiates my coverage of the Dimensional US Core Equity 1 ETF (NYSEARCA:DCOR), an actively managed total market fund with a low 0.14% expense ratio. While investors might be attracted to its affordability and broad diversification features, I'm less enthusiastic due to the fund's relatively poor quality. Below, I will highlight DCOR's fundamentals against the Avantis US Equity ETF (AVUS) and the JPMorgan U.S. Quality Factor ETF (JQUA), and select a favorite. I hope you enjoy the read. DCOR Overview Strategy Discussion Dimensional was established in 1981 and has firmwide assets totaling $677 billion. With 1,600+ employees operating across 15 global offices following one investment philosophy, Dimensional funds:  Offer higher expected returns. Use a flexible daily process. Are competitively priced.  This client brochure highlights Dimensional's belief that market prices contain adequate and reliable information that allows advisors to position portfolios toward outperformance. This \"financial science\" approach has led to 76% of Dimensional funds outperforming their Morningstar category peer group average in the last 15 years. While these averages include many high-priced mutual funds, these results are good enough to pique my interest. You don't have to settle for tracking the market. And you don't have to outguess the market to outperform it. Instead, Dimensional uses information in market prices to systematically target research-backed drivers of higher expected returns. This investment philosophy applies to DCOR, and since it is benchmarked against the Russell 3000 Index, it's geared toward total market investors. Although DCOR only launched on September 12, 2023, its assets under management are already $750 million, which I think speaks to the firm's long track record. Performance Analysis Since its inception, DCOR has gained 22.82% compared to 23.32% for the iShares Russell 3000 ETF (IWV), its benchmark. The chart below shows DCOR closing the gap in the last couple of weeks, and if the negative momentum for mega-caps like Nvidia continues, DCOR could end its first year with a win. Seeking Alpha A smoother ride through superior diversification is what actively managed funds like DCOR and the Avantis US Equity ETF (AVUS) offer. As shown below, DCOR's exposure to Magnificent Seven stocks is 22.25% compared to 26.81% for IWV. AVUS is a step-down at 19.48%, while the JPMorgan U.S. Quality Factor ETF (JQUA) has the lowest exposure at 9.25%. The Sunday Investor I already own the SPDR S&P 500 ETF (SPY), so I found JQUA to be an excellent complement to this \"core\" holding. If you're in the same boat, DCOR and AVUS might not be efficient additions, so consider fund overlap before selecting your favorite. To illustrate, DCOR's overlap with IWV is 79.51% compared to 78.34% and 37.94% for AVUS and JQUA, respectively. DCOR Analysis Sector Allocations and Key Under/Overweights The following table highlights the sector allocation differences between DCOR, AVUS, JQUA, and IWV. With such a high overlap with IWV, it's unsurprising to see DCOR's sector allocations nearly mirror its benchmark. However, there is about 4% less allocated to Technology, with the difference made up in Energy and Industrials. AVUS has much less Technology exposure at 21.66%, while JQUA overweights the sector at 32.22%. It's an interesting setup because, as I will demonstrate shortly, JQUA is the least volatile choice. The Sunday Investor DCOR makes only minor weight adjustments to IWV, but at least they appear factor-based. For example, DCOR underweights Tesla (TSLA) by 0.83% despite it being IWV's #10 holding. Here is a list of the top ten underweights:  Microsoft (MSFT): 4.85% vs. 5.99% (-1.14%) Tesla: 0.33% vs. 1.16% (-0.83%) Amazon (AMZN): 2.53% vs. 3.21% (-0.69%) Alphabet (GOOGL): 2.79% vs. 3.43% (-0.64%) Apple (AAPL): 5.39% vs. 6.00% (-0.61%) Broadcom (AVGO): 0.81% vs. 1.31% (-0.50%) NVIDIA (NVDA): 4.69% vs. 5.09% (-0.40%) Meta Platforms (META): 1.67% vs. 1.93% (-0.26%) ServiceNow (NOW): 0.09% vs. 0.32% (-0.23%) Prologis (PLD): 0.00% vs. 0.22% (-0.22%)  These underweights total 5.51%, but the difference is less noticeable when evaluating the top ten overweighted stocks, which total only 1.62%.  Exxon Mobil (XOM): 1.30% vs. 1.00% (+0.30%) JPMorgan Chase (JPM): 1.36% vs. 1.15% (+0.21%) Verizon Communications (VZ): 0.53% vs. 0.32% (+0.21%) Comcast (CMCSA): 0.45% vs. 0.29% (+0.15%) Hess Corp. (HES): 0.22% vs. 0.08% (+0.14%) TE Connectivity (TEL): 0.14% vs. 0.00% (+0.14%) United Rentals (URI): 0.23% vs. 0.09% (+0.14%) MetLife (MET): 0.20% vs. 0.09% (+0.11%) Kroger (KR): 0.18% vs. 0.07% (+0.11%) Valero Energy (VLO): 0.20% vs. 0.10% (+0.10%)  The top ten underweighted stocks trade at 13.03x forward earnings on average, compared to 42.20x for overweighted ones. This indicates Dimensional is positioned to favor value stocks moving forward, or at least is looking to limit the concentration of mega-caps. DCOR Fundamentals By Company The following table highlights selected fundamental metrics for DCOR's top 25 holdings, totaling 36.43%. This concentration level is about 5% less than IWV, but slightly higher than the 31.28% and 35.05% figures for AVUS and JQUA. The Sunday Investor Here are three additional observations to consider: 1. DCOR trades at 24.80x forward earnings (19.38x harmonic average), a few points cheaper than IWV. Given how its one-year estimated sales and earnings growth rates of 8.06% and 11.51% aren't much lower, these tradeoffs are reasonable. DCOR also has an identical 1.09 five-year beta, but as mentioned earlier, it's noticeably higher than JQUA's 0.99. JQUA should be less volatile moving forward, and since December 2017, it's done an admirable job at controlling risk without sacrificing returns. Portfolio Visualizer DCOR doesn't have this track record yet, but I don't think its allocation adjustments are substantial enough to provide much protection in market downturns. Still, I think it could outperform total market funds, and I like how it's not entirely market-cap-weighted, which was my main criticism of the iShares Core S&P Total U.S. Stock Market ETF (ITOT) earlier this month. 2. DCOR's valuation improvement comes with a quality sacrifice, demonstrating no free lunch in investing. The quality sacrifice is revealed by DCOR's 8.68/10 profit score, derived using Seeking Alpha Factor Grades, which is 0.30 points less than IWV's profit score. The table shows how nearly all of the market's top stocks have perfect \"A+\" Profitability Grades, so it's natural to expect quality to diminish when you underweight those stocks. However, JQUA's 9.35/10 profit score proves you don't have to lower quality in pursuit of diversification, and this was the main draw for me. 3. The table reveals the market is finally beginning to broaden. For example, most of DCOR's top stocks are trading below their 50-day moving average prices and are now in a similar 52-week trading range as the rest of the fund. For reference, each stock's \"price position\" statistic is calculated as follows: [Current Price - 52W Low Price] / [52W High Price - 52W Low Price] The majority of Magnificent Seven stocks are in the 65-75% range compared to the weighted average 71.90% figure for the entire fund, so this might suggest the broadening is complete. However, DCOR's holdings based on current weights are up 61.13% over the last three years compared to 42.69% for JQUA, indicating there could be more left to come. As you might have guessed, Nvidia was a key driver. Its 485.99% three-year price return contributed 37.75% of the ETF's weighted-adjusted gains. Furthermore, ten stocks contributed to 60.29% of these gains, but make up only 23.69% of the fund. The Sunday Investor In my view, that's excessive, and preparing for a correction or market broadening is only prudent. Here's the same table for JQUA that shows a 12% less relative contribution rate (48.45% vs. 60.29%), indicating it's much better prepared than DCOR for such a correction. The Sunday Investor Investment Recommendation DCOR is an actively managed total market fund with a low 0.14% expense ratio. Currently, it has a slight value tilt and doesn't sacrifice much growth, so it has a solid chance at outperforming its benchmark, the Russell 3000 Index, in the short term. However, DCOR's weight adjustments with IWV are minor, and given the 80% overlap between the two funds, I doubt any extra gains will be significant. Remember that DCOR, as its name suggests, is meant to replace your total market fund, not complement another one.  Instead, if you're happy with a core holding like SPY and are considering a compliment, I believe JQUA is a better bet. It's less volatile than DCOR, higher quality, and designed to withstand a significant correction involving the Magnificent Seven stocks. Since I have no place for DCOR in my portfolio, I'm rating it a \"hold,\" but I still hope you found this information useful, and I invite any questions you might have in the comments below. 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