CDL ETF: Dividend Performance and Sector Allocation Analysis#
Today, February 20, 2025, this comprehensive update analyzes the VictoryShares US Large Cap High Div Volatility Wtd ETF (CDL), focusing on its dividend performance, sector allocation, and investment strategy. This analysis is based on the latest available data from Monexa AI and other reputable financial sources.
The VictoryShares US Large Cap High Div Volatility Wtd ETF (CDL) aims to provide investors with exposure to high-dividend-yielding, low-volatility U.S. large-cap stocks. According to Monexa AI, the ETF's current price is $68.72, reflecting a slight increase of +0.04% with a change of $0.03. The ETF's strategy focuses on delivering a steady income stream while mitigating downside risk through its volatility-weighted methodology. However, several factors, including sector allocation, expense ratio, and potential underperformance relative to other dividend ETFs, warrant careful consideration.
The ETF's investment objective is to track the Nasdaq Victory US Large Cap High Dividend 100 Volatility Weighted Index. This index selects stocks from the Nasdaq Victory US Large Cap 500 Volatility Weighted Index, which comprises the 500 largest U.S. companies by market capitalization with positive earnings over the last twelve months. By focusing on companies with a history of profitability and lower volatility, CDL seeks to provide a more stable investment experience compared to broad market indices. The ETF's current beta of 0.78, according to Monexa AI, suggests it is less volatile than the overall market.
Key Features of the VictoryShares CDL ETF#
The VictoryShares US Large Cap High Div Volatility Wtd ETF (CDL) distinguishes itself through several key features:
- High Dividend Yield: The ETF targets companies with a history of consistent dividend payments, providing investors with a steady income stream. According to Monexa AI, the dividend yield TTM is +3.11%.
- Low Volatility: The ETF employs a volatility-weighted methodology to reduce overall portfolio volatility, aiming to provide a smoother investment experience.
- U.S. Large-Cap Focus: The ETF invests in large-cap U.S. companies, providing exposure to established and stable businesses.
- Volatility-Weighted Index: The ETF tracks the Nasdaq Victory US Large Cap High Dividend 100 Volatility Weighted Index, which selects stocks based on their trailing volatility.
According to Monexa AI, the ETF's previous close was $68.69, and it opened today at $68.4968. The day's range has been between $68.49 and $68.9, reflecting minimal intraday volatility.
Understanding CDL's Investment Strategy and Methodology#
The core of CDL's investment strategy lies in its volatility-weighted methodology. Unlike traditional market-cap-weighted indices, which allocate a higher percentage of assets to larger companies, CDL assigns weights based on the trailing volatility of each stock. This means that stocks with lower historical volatility receive a higher weighting in the portfolio, while those with higher volatility receive a lower weighting. The intention is to reduce the overall volatility of the portfolio and provide a smoother investment experience for shareholders.
Volatility Weighting Explained#
The volatility weighting approach is designed to provide downside protection during market downturns. By allocating a larger percentage of assets to less volatile stocks, the ETF aims to limit losses when the market declines. However, this strategy also has potential drawbacks. In a strong bull market, less volatile stocks may underperform their more volatile counterparts, potentially leading to lower overall returns for the ETF. Therefore, the effectiveness of CDL's volatility-weighted approach is highly dependent on market conditions.
Victory Capital, the issuer of CDL, suggests that market-cap-weighting schemes are flawed and that its volatility-weighted approach is superior. However, some analysts suggest the opposite. For instance, the ETF features 11-12% lower free cash flow margins than funds like SCHD and DLN, which incorporate a security's size into the weighting equation. This suggests that CDL's focus on volatility may come at the expense of quality and growth.
CDL's Sector Allocation: A Deep Dive into Utilities, Energy, and Financials#
One of the most notable characteristics of the CDL ETF is its sector allocation. As highlighted in various analyses, the ETF is heavily weighted towards utilities, energy, and financials. This sector bias has significant implications for the ETF's performance and risk profile. While these sectors can provide stable income streams and downside protection, they may also limit the ETF's growth potential and expose it to specific sector-related risks.
Overweighting in Utilities: Risks and Opportunities#
The utilities sector is often considered a defensive sector, providing essential services that are relatively insensitive to economic cycles. Utility companies tend to have stable cash flows and pay consistent dividends, making them attractive to income-seeking investors. However, the utilities sector is also highly regulated and capital-intensive, which can limit its growth potential. Moreover, utility companies are often sensitive to interest rate changes, as higher rates can increase their borrowing costs and reduce their profitability.
Energy Sector Exposure: Benefiting from Inflation?#
The energy sector is another significant component of CDL's portfolio. Energy companies can benefit from rising commodity prices, particularly during periods of inflation. However, the energy sector is also highly volatile and subject to geopolitical risks and regulatory changes. Moreover, the long-term outlook for the energy sector is uncertain, as the world transitions towards cleaner and more sustainable energy sources.
Financial Sector Holdings: Navigating Interest Rate Changes#
The financial sector is also well-represented in CDL's portfolio. Financial companies can benefit from rising interest rates, as they can increase their net interest margins. However, the financial sector is also sensitive to economic cycles and regulatory changes. Moreover, financial companies can be exposed to credit risk and market risk, which can negatively impact their profitability.
Performance Analysis: How CDL Stacks Up Against Competitors (VYM, SCHD)#
A crucial aspect of evaluating any ETF is its performance relative to its peers. In the case of CDL, it's essential to compare its performance to other high-dividend, low-volatility ETFs, such as the Vanguard High Dividend Yield ETF (VYM) and the Schwab U.S. Dividend Equity ETF (SCHD). These ETFs have similar investment objectives but employ different methodologies, resulting in varying performance outcomes.
Comparative Performance: CDL vs. VYM and SCHD Over 5 Years#
While historical data is not available in this real-time context, generally, VYM and SCHD have often outperformed CDL over the long term. This outperformance is often attributed to their lower expense ratios and more diversified sector allocations. VYM, for example, tracks the FTSE High Dividend Yield Index, which includes a broader range of sectors and companies compared to CDL. SCHD, on the other hand, focuses on companies with strong financial health and consistent dividend growth, which can lead to superior long-term returns.
Expense Ratio and Turnover Rate: Examining the Impact on Returns#
Two key factors that can significantly impact an ETF's performance are its expense ratio and turnover rate. The expense ratio represents the annual cost of owning the ETF, expressed as a percentage of the fund's assets. The turnover rate measures the percentage of the ETF's portfolio that is replaced each year. Higher expense ratios and turnover rates can erode returns and reduce the overall profitability of the investment.
The Impact of Higher Expense Ratios#
CDL has an expense ratio of 0.35%, according to Monexa AI, which is higher than both VYM (0.06%) and SCHD (0.06%). This means that for every $10,000 invested in CDL, investors will pay $35 in annual fees, compared to only $6 for VYM and SCHD. Over time, this difference in expense ratios can have a significant impact on returns, particularly in a low-return environment.
Turnover Rate and Tax Efficiency#
While specific turnover rate data is unavailable in this real-time context, a higher turnover rate can lead to increased trading costs and potentially impact tax efficiency. When an ETF frequently buys and sells securities, it can generate capital gains that are taxable to shareholders. Lower turnover rates are generally preferred, as they minimize trading costs and reduce the potential for taxable events.
Analyzing CDL's Dividend Yield and Stability#
The dividend yield is a key metric for evaluating income-oriented ETFs like CDL. The dividend yield represents the annual dividend payment divided by the ETF's share price, expressed as a percentage. A higher dividend yield generally indicates a more attractive income stream for investors. However, it's also important to consider the stability and sustainability of the dividend yield.
Factors Influencing CDL's Dividend Payouts#
CDL's dividend payouts are influenced by several factors, including the dividend policies of its underlying holdings, the ETF's expense ratio, and its turnover rate. If the underlying companies in CDL's portfolio reduce their dividend payments, the ETF's dividend yield will likely decline. Similarly, higher expense ratios and turnover rates can reduce the amount of income available for distribution to shareholders.
Comparing CDL's Dividend Yield to Other ETFs#
As of today, February 20, 2025, CDL has a dividend yield of +3.11%, according to Monexa AI. While this is an attractive yield compared to the overall market, it's important to compare it to the yields of other dividend ETFs, such as VYM and SCHD. These ETFs may offer similar or even higher dividend yields with lower expense ratios and more diversified sector allocations.
CDL's Volatility-Weighted Approach: Is It Effective?#
The effectiveness of CDL's volatility-weighted approach is a subject of debate. While the strategy aims to reduce the overall volatility of the portfolio, it may also limit its growth potential and lead to underperformance during bull markets.
Measuring CDL's Volatility Reduction During Market Downturns#
To assess the effectiveness of CDL's volatility-weighted approach, it's important to compare its performance during market downturns to that of other dividend ETFs and broad market indices. If CDL consistently exhibits lower volatility and smaller losses during market declines, it suggests that its volatility-weighted approach is working as intended.
Potential Underperformance During Bull Markets#
However, it's also important to consider CDL's performance during bull markets. If CDL consistently underperforms its peers during periods of strong market growth, it suggests that its volatility-weighted approach may be limiting its upside potential.
Macroeconomic Factors Influencing CDL's Performance#
Macroeconomic factors, such as interest rates, inflation, and economic growth, can have a significant impact on CDL's performance. These factors can influence the profitability of the companies in CDL's portfolio and the overall attractiveness of dividend-paying stocks.
Interest Rate Sensitivity#
Rising interest rates can negatively impact utility companies, as they can increase their borrowing costs and reduce their profitability. However, rising interest rates can also benefit financial companies, as they can increase their net interest margins. The overall impact of interest rate changes on CDL's performance will depend on the relative weighting of these sectors in the portfolio.
Inflationary Pressures and Sector Performance#
Inflation can positively affect energy companies, as higher commodity prices can increase their revenues. However, inflation can also negatively affect utility and financial companies, as it can increase their operating costs and reduce consumer spending. The overall impact of inflation on CDL's performance will depend on the relative weighting of these sectors in the portfolio and the overall level of inflation.
Investment Considerations: Is CDL Right for Your Portfolio?#
Before investing in CDL, it's important to carefully consider your investment goals, risk tolerance, and time horizon. CDL may be a suitable investment for income-seeking investors who are looking for a steady stream of dividends and are willing to accept potentially lower growth. However, it may not be the best choice for growth-oriented investors who are looking for higher returns and are willing to take on more risk.
Assessing Your Risk Tolerance#
CDL's volatility-weighted approach is designed to reduce the overall volatility of the portfolio. However, it's still important to assess your own risk tolerance before investing in CDL. If you are highly risk-averse, CDL may be a suitable investment. However, if you are comfortable with higher levels of volatility, you may be able to achieve higher returns by investing in other ETFs or individual stocks.
Considering CDL's Sector Biases#
CDL's sector allocation is heavily weighted towards utilities, energy, and financials. This sector bias can have a significant impact on the ETF's performance, both positively and negatively. Before investing in CDL, it's important to consider your own views on these sectors and whether you are comfortable with the ETF's overweighting in these areas.
In conclusion, the CDL ETF offers a compelling combination of high dividend yield and low volatility, making it potentially attractive to income-focused investors. However, its sector biases, higher expense ratio, and potential for underperformance compared to peers like VYM and SCHD warrant careful consideration. Investors should weigh these factors against their individual investment goals, risk tolerance, and time horizon before making a decision. Further research into the ETF's underlying holdings and the macroeconomic outlook is also recommended.
Below is a table summarizing key performance metrics for CDL as of today:
| Metric | Value |
|---|---|
| Current Price | $68.72 |
| Change | +0.03 |
| Dividend Yield (TTM) | 3.11% |
| Beta | 0.78 |
| Expense Ratio | 0.35% |
Additionally, the following table presents a comparison of CDL with its peers, VYM and SCHD:
| Metric | CDL | VYM | SCHD |
|---|---|---|---|
| Expense Ratio | 0.35% | 0.06% | 0.06% |
| Dividend Yield | 3.11% | N/A | N/A |