I like to write about ETFs as I have the majority of my stock portfolio in ETFs I find them an easy and passive way for me to invest money and they don’t require much maintenance in terms of keeping track of stocks etc. In this article, we are looking at the WisdomTree US Quality Dividend Growth UCITS ETF (DGRW) and my personal review related to this ETF and hereby will also share how I see it in terms of dividend investing.
An exchange-traded fund is represented as a stock in the stock market so by holding this specific stock you are holding a basket of stocks that correspond to an index (portfolio benchmark) that it is tracking.
This is more of an income ETF and its main goal is to track stocks from the US, however, at the time of writing is paying out a dividend yield of around 2.35% which is not too bad depending on the time and recently got boosted by the current market conditions. However, this ETF is not focused on only providing income but as well growing it over time so a yield on its own won't tell us the full story therefore we need to look further into it.
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 ETF currently holds about 300 stocks which provides enough diversification for me. When it comes to geographical diversification, this ETF is solely focused on the US as the name suggests. In my opinion, it may be too focused on one country for some, however, a lot of these companies are large qualitative companies that operate internationally as well.
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 are representing almost 38.5% of the total holdings, which gives us a decent overview.
The top 10 holdings:
Johnson & Johnson 5.9%
Apple Inc. - 5%
Merck & Co Inc - 4.6%
Microsoft Corp. - 4.1%
Coca-Cola Co - 3.9%
Procter & Gamble Co -3.7%
UnitedHealth Group Inc - 3.2%
PepsiCo Inc - 3.1%
Home Depot Inc - 2.5%
Amgen Inc - 2.5%
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.
The top 5 sectors:
Technology - 22.8%
Healthcare - 22.3%
Consumer Staples - 16.1%
Industrials - 12.9%
Consumer discretionary- 11.7%
Conclusion:
Overall we can see that the holdings are quite diversified, however, even though we are holding 300 stocks the top 10 are making just shy of 40% of the ETF. When it comes to geographical diversification, this is solely a US ETF. therefore this is focused on US companies however, many of these companies have US exposure. When it comes to the individual holdings overall I like the exposure to these companies. However, looking at the sector diversification gives a better overview of the total composition of the ETF. For my taste, overall there is a nice balance with a focus on technology and I find for my taste that healthcare may be just a bit high. However, this is a personal preference and I find it quite balanced with the main focus on technology.
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, the ETF has an expense ratio of 0.33% Which for me is not very low but also not too high, however, personally would have loved to see it a bit lower.
Performance
Since this is a more dividend-oriented ETF 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 over the last 5 years this fund has increased by over 52%. When it comes to dividend payout, In 2018 this fund was paying out 0.39 USD per share and this last year it paid out 0.46 USD. In the last few years, this means that we had an increase of 18% compared to 2018, which is about more than a 3.4% compound annual growth rate. Based on this information, I conclude that there was a nice appreciation in the stock price, however, the income increases were not that compelling, based on my estimates and calculations.
Pros
I find that there is quite some nice diversification in this fund in terms of sector allocation and the number of stocks.
Secondly, I find that it has had nice growth in terms of capital appreciation over the past 5 years.
Thirdly, the top holdings are companies that I know and would like to have as part of my portfolio overall and are definitely an asset.
Cons:
I find personally that at least for the last five years the dividend growth hasn't been great especially given the starting yield. However, there may be something wrong with my calculation since the top 10 holdings seem decent.
Secondly, the top 10 holdings are representing 38.5% of the fund which means it may have too many holdings at 300 if the top 10 represents already 38.5%.
Thirdly, the expense ratio could be lower since it only has a bit more than 300 stocks and only focuses on US companies.
Fourthly, as with all funds, it is not possible to choose the individual holdings so basically whether you like a stock or not in a fund, you are holding that stock indirectly, with this I want to say that you are buying the winners and losers and try to achieve a market return based on the index
Conclusion
I currently don't hold this ETF in my portfolio as I like to have a mix of growth and dividend growth. Basically, I have a strategic mix of other ETFs and stocks to make up my portfolio so that it fits my goals. I want to tap into my stocks or dividends in over 20 years or so. I already hold the Fidelity US Quality Income UCITS ETF which better fits my goals and has a similar profile.
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.
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