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The Capital Group Dividend Value ETF has a “secret sauce” that led it to outperform its peers this year, according to Morningstar. The fund, ticker CGDV, is the top performing dividend fund so far this year, said Bryan Armour, Morningstar’s director of passive strategies research for North America. It has a 30-day SEC yield of 1.76% and a total return of 16.37% year to date. “The core premise of this strategy is targeting high-quality companies that have consistently paid out dividends for a decade plus, which is a really strong strategy over a long term. It has worked really well in the past decade plus,” Armour said. The team looks for names that have dividends up to 30% higher than the S & P 500 , which currently yields 1.52%. However, the fund also invests in some non-dividend paying companies, which helped give it a boost this year. It invests up to 10% of the fund in stocks without a yield. Turnaround candidates “They also can allocate towards companies that they see as having strong balance sheets, profitable with modest leverage, that they think could rebound,” Armour said. “That has been the secret sauce for this strategy year to date.” For instance, the fund has modest stakes in Meta , which makes up 1.8% of its assets, and Royal Caribbean , at less than 0.93% of its assets. Shares of Meta are up a whopping 138% year to date, while Royal Caribbean’s stock has also doubled. CGDV, Capital Group’s largest exchange traded fund, is one of the first six ETFs the firm launched in February 2022. It now has $2.8 billion in assets under management and primarily focuses on U.S. large-cap, investment-grade rated companies, said Jacob Gerber, investment director at Capital Group. It has a 0.33% expense ratio. “Investors appreciate its non-traditional value strategy focusing on above average income while also generating long-term capital appreciation through an emphasis on companies trading below their intrinsic value,” Gerber said. A team of five managers run individual sleeves with the fund. “They all go with their highest conviction picks, and then they put it all back together into one portfolio,” Morningstar’s Armour said. “You see a lot of different things working for different reasons through that process.” Its largest sector position is information technology, at 20.4% of net assets, followed by industrials at 16.9%. Over the last 12 months, the fund’s stock selection within industrials “contributed meaningfully to absolute and relative results,” Gerber noted. Industrial conglomerates and building products contributed the most, he said. CGDV’s net asset value, the sum of all its assets minus liabilities and the metric Morningstar used to determine its status, is up 16.39% in 2023.
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