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The Capital Group Dividend Value ETF: The ‘Secret Sauce’ Behind Its Outperformance in 2023

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The Capital Group Dividend Value ETF: A Top Performer in 2023

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Introduction

The Capital Group Dividend Value ETF, ticker CGDV, has emerged as the top performing dividend fund in 2023, surpassing its peers. Morningstar attributes its success to a unique investment strategy known as the “secret sauce.”

Targeting High-Quality Dividend-Paying Companies

The core premise of the CGDV strategy is to invest in high-quality companies that have consistently paid dividends for over a decade. According to Bryan Armour, Morningstar’s director of passive strategies research for North America, this long-term approach has proven highly effective. The fund focuses on companies that offer dividends up to 30% higher than the S & P 500, which currently yields 1.52%.

Investing in Non-Dividend Paying Companies

In addition to dividend-paying companies, CGDV also allocates up to 10% of its fund in stocks without a yield. This unconventional approach has contributed to its exceptional performance in 2023. The fund’s managers identify turnaround candidates with strong balance sheets and profitable operations. These companies, such as Meta and Royal Caribbean, have experienced significant stock price growth, further boosting CGDV’s returns.

A Focus on U.S. Large-Cap, Investment-Grade Companies

CGDV, Capital Group’s largest exchange traded fund, primarily focuses on U.S. large-cap, investment-grade rated companies. The fund, launched in February 2022, has rapidly grown to $2.8 billion in assets under management. It offers investors a non-traditional value strategy, emphasizing above-average income while generating long-term capital appreciation by investing in undervalued companies.

Diversified Management Approach

A team of five managers individually selects their highest conviction picks, which are then combined into one portfolio. This diversified management approach allows for various investment strategies to contribute to the fund’s performance. Morningstar’s Armour highlights the effectiveness of this process, stating, “You see a lot of different things working for different reasons through that process.”

Sector Allocation and Performance

CGDV’s largest sector position is information technology, representing 20.4% of net assets, followed by industrials at 16.9%. Over the past 12 months, the fund’s stock selection within the industrials sector has significantly contributed to its absolute and relative performance. Industrial conglomerates and building products have been particularly favorable investments.

Impressive Net Asset Value Growth

In 2023, CGDV’s net asset value, which represents the sum of all its assets minus liabilities, has experienced a remarkable growth rate of 16.39%.

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