TDV Combines Technology, Dividend Growth And Equal Weight (BATS:TDV)

TDV Combines Technology, Dividend Growth And Equal Weight (BATS:TDV)

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  • May 15, 2022
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  • 18 minutes read


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This series of ETF dividend items aims to evaluate the products in terms of past relative performance of their strategies and quality metrics of their current portfolios. As holdings and their weights change over time, I may update the reviews, usually not more than once a year.

TV strategy and portfolio

The S&P Technology Dividend Aristocrats ETF (BATS: TDV) has been tracking the S&P Technology Dividend Aristocrats Index since 11/05/2019. It has 40 holdings, a 30-day SEC return of 1.47% and a total expense ratio of 0.45%. Managed assets are still low (about $ 100 million) and liquidity is scarce.

As described by the S&P Dow Jones Indices, to be eligible for the index, a company must be in the GICS information technology industry or in one of the top three Internet industries in the communications services industry. It must also have increased dividends each year for at least seven consecutive years and have an average daily volume of 6 months above $ 1 million. The number of years of dividend increase can be reduced to 6, 5 or 4 years if there are less than 25 eligible companies. The index is reconstituted annually and rebalanced quarterly with components of equal weight

The fund invests exclusively in US companies, in all size segments.

TDV size segments

TDV size segments (graphic: author; data: fidelity)

The three heaviest industries are computer services (27.3%), semiconductors (25%) and electronic equipment (20.6%). Other industries are below 10%. Compared to the S&P Technology Selection Index (XLK), TDV outperforms many electronic equipment. It puts a wide range of software and hardware.

TV industries

TDV industries (graphic: author; data: Fidelity)

The 10 main holdings, listed in the table below with some key ratios, represent 27.5% of the value of the assets. The largest shareholding weighs 3.18%, so the risks associated with individual shares are low.

Ticker

First name

% by weight

EPS% TTM growth

P / E TTM

P / E fwd

Yield%

AVT

Avnet Inc.

3.18%

231.10

8.85

6.85

2.22

LFUS

Littelfuse Inc.

3.00%

109.09

19.24

15.77

0.80

GLW

Corning Inc.

2.74%

-4.11

28.45

15.09

3.04

LRCX

Lam Research Corp.

2.73%

35.06

15.38

15.46

1.22

POWI

Power Integrations Inc.

2.65%

80.04

30.06

21.93

0.86

TEL

TE Connectivity Ltd

2.65%

134.48

16.55

17.53

1.79

ATVI

Activision Blizzard Inc.

2.64%

6.54

24.61

25.89

0.60

ADI

Analog Devices Inc

2.63%

-15.96

50.03

18.74

1.92

AVGO

Broadcom Inc.

2.63%

103.86

33.53

16.54

2.79

KLAC

KLA Corp.

2.60%

72.92

16.32

16/09

1.25

Historical performance

The price history is short: the underlying index was launched in October 2019 and the ETF about a month later. S&P Dow Jones Indices provides simulated data for 1/31/2014. The following graph compares the underlying TDV index (in blue) with that of SPY (red) and XLK (green).

Underlying TDV, SPY and XLK indices since 2014

Underlying TDV, SPY and XLK indices since 2014 (chart: author; data: S&P Dow Jones indices)

Based on the underlying indices since 2014, the (simulated) TDV strategy lags behind the industry benchmark and exceeds the broad market index.

The following graph represents the actual relative performance since the creation of TDV. Again, TDV is among the other two index funds.

TDV vs SPY and XLK from the beginning

TDV vs SPY and XLK since creation (Portfolio123)

Comparison of TV with a reference strategy

In previous articles, I’ve shown how three factors can help reduce risk in a dividend portfolio: Asset return, Piotroski F score, Altman Z score, payout ratio.

The following table compares TDV since its inception with a subset of the S&P 500: stocks with above-average dividend yields, above-average ROAs, a good Z Altman score, a good Piotroski F-score, and a ratio of sustainable payment. The subset is rebalanced quarterly to make it comparable to a passive index.

Total performance

Annual return

Descent

Sharpe relationship

Volatility

TDV

45.34%

16.08%

-34.62%

0.97

18.74%

Subset of dividends and quality

44.39%

15.78%

-34.65%

0.86

18.80%

Past performance is not a guarantee of future performance. Data source: Portfolio123

TDV and this dividend quality benchmark have similar performance and risk metrics in this period. However, the performance of the ETF is real and the subset is hypothetical. My main portfolio has 14 stocks selected in this subset (more information at the end of this post). Unlike TDV, it includes all sectors.

Scanning the current portfolio

TDV has a portfolio of 40 shares. It is significantly cheaper than the XLK industry benchmark in terms of the usual valuation ratios, as reported in the table below. The price / sales difference is especially impressive.

TDV

XLK

TTM Price / Earnings

20.03

25.58

Price / Book

4.78

8.42

Price / Sales

2.22

6

Price / Cash Flow

16.66

19.63

I scanned the TDV backgrounds with the quality metrics described in the previous paragraph. I consider the risk stocks to be companies with at least 2 red flags between: bad Piotroski score, negative ROA, unsustainable payout ratio, bad or questionable Altman Z score. With these assumptions, only 3 shares out of 40 are risky and weigh less than 7% of the value of the asset, which is a good point.

According to my calculation, TDV has a better aggregate ROA than XLK, but a lower aggregate Piotroski F score. The difference in Altman’s Z-score is not very significant. In short, the quality is close to the benchmark.

TDV

XLK

Altman Z score

6.25

6.67

Piotroski F score

6.3

7.4

ROA% TTM

13.41

12.06

Take away

TDV has a portfolio with a minimum of 25 dividend growth shares in the technology sector (currently 40). The weights of the sector are quite different from the XLK industry benchmark: the fund underweight hardware and software, and overweight computer services, semiconductors and electronic equipment. It follows a methodology of equal weight, which is a guarantee against excessive exposure to individual actions. TDV is more attractive than XLK in terms of rating, but the quality is similar. The underlying index has performed below XLK in a simulation that began in 2014, and also in the real world since its inception (2019). However, it has surpassed the S&P 500 in both periods. TDV liquidity is quite low: caution and limited orders are recommended. For transparency, my capital investments are divided between a passive ETF allocation (TDV is not part of it) and an actively managed equity portfolio, the positions and operations of which are shown in Risk and Value quantitative.



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