I like to write about ETFs as I have the majority of my stock portfolio in ETFs I find them a passive way to invest money and they don’t require much maintenance in terms of keeping track of stocks etc. However, one important question that needs to be addressed is which ETF to choose. In this article we are comparing two ETFs on one hand we have the WisdomTree US Quality Dividend Growth UCITS ETF Review (DGRW) and on the other, we have the Fidelity US Quality Income UCITS ETF Review (FUSD). In this article, we look at a comparison and my personal review related to these ETFs and how they stand against each other, through the lens of primarily a dividend investor. It is to be noted that these are ETFs available in Europe but focus on US Dividend stocks. The United States generally hosts one of the best stocks and the best dividend-paying companies overall. It is important to note that while these companies are domiciled in the US, many stocks operate all over the world. I also have an article dedicated to the WisdomTree US Quality Dividend Growth UCITS ETF Review (DGRW) and the Fidelity US Quality Income UCITS ETF Review (FUSD) separately.
Before we start we need to clarify what are exchange-traded funds, an exchange-traded fund is represented as a stock in the stock market and by holding this specific stock you are holding a basket of stocks that correspond to an index (portfolio benchmark) that it is tracking. The current benchmark/portfolio
The fund seeks to track the performance of the WisdomTree U.S. Quality Dividend Growth UCITS Index. Generally, The index is rules-based, fundamentally weighted, and is comprised of high-quality dividend-paying US companies, risk-filtered using a composite risk score ("CRS") screening which is made up of two factors (quality and momentum) each carrying an equal weighting.
The fund seeks to track the performance of the US Quality Income UCITS. Generally, the Index is designed to reflect the performance of stocks of large and mid-capitalization dividend-paying US companies that exhibit quality fundamental characteristics.
DGRW currently holds about 300 stocks which provide more than plenty of diversification in my opinion. While FUSD currently holds about 110 stocks. Overall, I find both ETFs provide plenty of diversification in terms of the total amount of holdings, and personally, I am happy if an ETF holds about 100 stocks rather than having a large amount as I believe in the careful selection of stocks as such.
When looking at ETFs I find it crucial to have a look at the top 10 holdings to get a good feeling of the ETF and to see if it fits my profile and to see if these would be companies I would invest myself in individually. In this case, the top 10 holdings of DGRW are representing almost 35% of the total holdings, which gives us a decent overview. While for FUSD the top 10 holdings are representing 21% of the total holdings which gives us a good overview as well.
The top 10 holdings (DGRW):
Microsoft Corp - 6.5%
Apple Inc. - 4.8%
Johnson & Johnson - 4.3%
Procter & Gamble Co -3.3%
Home Depot Inc- 2.9%
Coca-Cola Co - 2.8%
Merck & Co Inc - 2.8%
Broadcom Inc - 2.7%
PepsiCo Inc - 2.3%
Cisco Systems Inc - 2.3%
The top 10 holdings (FUSD):
Apple Inc. - 5.1%
Microsoft Corp. - 4.5%
Chevron Corp - 1.7%
Merck & Co Inc - 1.5%
Procter & Gamble Co - 1.5%
Eli Lilly and Co 1.5%
The Home Depot Inc - 1.5%
Verizon Communications Inc - 1.3%
AbbVie Inc - 1.3%
Comcast Corp Class A - 1.3%
We can see that there is a lot of overlap between these two ETFs and that makes sense since they are both looking at qualitative dividend stocks. However, looking strictly at the top 10 companies my personal preference goes for DGRW based on the companies it holds. However, this is only part of the story since they account for less than 50% of the total portfolio, therefore it is also important and interesting to look at sector diversification as it provides a good idea of how this fund is allocated through various sectors. One thing to note is that for both ETFs the top 2 holdings account for a great part of the ETF and some may see it as not diversified enough. However, it is quite close as these ETFs are quite similar.
The top 5 sectors (DGRW)
Technology - 27%
Consumer Staples - 15%
Health Care - 15%
Industrials - 13%
Consumer discretionary- 12%
The top 5 sectors (FUSD)
Technology - 24%
Health Care - 15%
Consumer discretionary - 12%
Financials - 12%
Industrials - 9%
DGRW is closer to my ideal allocation, however, all of this should be considered with a grain of salt since these ETFs are rebalanced periodically. One downside may be the allocation to technology which can be too high at above 25%. For FUSD, one downside is the fact that consumer staples are missing in the top 5 sectors which I would have liked to see and would personally sacrifice other sectors such for example financials. Overall, this is a personal preference and these two ETFs are quite similar and close to my personal ideal allocation
Expense Ratio
When it comes to the expense ratio, the lower the better and I would generally like to see an expense ratio below 0.5%. Overall in Europe, I find the ETFs available a bit more expensive than what is available in the United States. In this case, DGRW has an expense ratio of 0.33% which for me is not very low but also not too high. FUSD has an expense ratio of 0.25% which is better overall. I personally prefer FUSD for a lower expense ratio as this will affect the overall performance in the Long term.
Performance
I want to look at both the capital appreciation, as well as the dividend growth over the last couple of years.
Purely looking at capital appreciation in the last 5 years DGRW has increased over 37%, while FUSD has increased about 36% However, looking at a longer period these funds have performed better than this.
The starting dividend yield at the time of writing is 2% for DGRW. In 2018 was paid out 0.34 Euro and this last year it paid out 0.44 Euro In the last few years, this means that we had an increase of 29% compared to 2018, which is more than a 5.3% compound annual growth rate.
For FUSD The starting dividend yield at the time of writing is 2.3% In 2018 this fund was paying out 0.10 Euro and this last year it paid out 0.17 Euro. In the last few years, this means that we had an increase of 70% compared to 2018, which is about more than an 11% compound annual growth rate. Based on this information, I conclude that there was a decent appreciation in the stock price, however, the income increases are quite interesting as well based on my own estimates and calculation.
Strictly looking at the dividend yield FUSD provides a higher current dividend yield than DGRW, which means more money will be distributed right now, however, DGRW has more overall capital growth although, by a very small margin, which is bigger in the longer term. When it comes to dividend growth, FUSD definitely is a win that may be more attractive in the longer term as it will compound over time, this is all based on past data so there are no guarantees.
Conclusion
In the end, I think the allocation has all to do with the timeline and goal. I currently hold FUSD as a way to enjoy the benefit over a longer term and to reach my target allocation in terms of growth and dividend. I like the allocations with DGRW more, and I am still analyzing whether it makes sense to hold DGRW in the future, as it stands I only hold FUSD in this case due to the better dividend and dividend growth performance and based on the portfolio this was more similar overall.
I hold FUSD in my portfolio as I like the dividend growth investing approach, however, I don't solely hold this ETF. Basically, I have a strategic mix of ETFs and other stocks to make up my portfolio so that it fits my goals. I want to tap into my stocks /dividends in over 20 years or so. That means that in my opinion focusing only on this ETF would not provide me with the best outcome that fits my goals and taste.
Disclaimer: I am not a financial advisor, this blog is centered around my opinion and should not be viewed as legal, professional, or financial advice. For me, it's crucial to supplement my knowledge with resources like videos, articles, and books to deepen my understanding of investing principles and strategies.
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