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Inflation and rising rates have markets beginning to pivot from the high valuations of growth stocks and towards value stocks, which typically perform better in high inflation environments. Flows in the first two weeks of January reflect this, with outflows from growth ETFs and inflows into value; value ETFs have taken in approximately 10.6% of all flows into ETFs in January so far according to FactSet data.
For advisors looking for a value play, the KFA Small Cap Quality Dividend Index ETF (KSCD) offers value investing with an eye towards reliable growth. The fund is benchmarked to the Russell 2000 Dividend Select Equal Weight Index, which utilizes smart beta to invest in small-cap companies within the U.S.
The fund offers exposure to companies that have demonstrated steady dividend growth over the course of 10 years with no decrease in quarter-to-quarter dividends per share per the prospectus, and also have an established record of stable cash flow and a robust business model. These characteristics together demonstrate what the fund deems as “quality.”
Securities that have the highest six-month and 12-month risk-adjusted price momentum values from the Russell 2000 are included in the Russell 2000 Dividend Select Equal Weight Index. The index is updated quarterly, and any companies that have demonstrated decreasing quarter-to-quarter dividends are removed. All of the securities contained in the index are then equal weighted.
KSCD utilizes a smart beta strategy that seeks to deliver alpha at a price point that is cost effective for investors. The fund is positioned to potentially perform well in a down market environment, as strategies that focus on dividend growth can potentially offer improved performance in said environments.
As of the end of December, the fund had a 29.43% allocation into financials, 17.25% into utilities, 14.73% to industrials, 12.59% to materials, 9.03% to consumer staples, and several smaller segment allocations.
Top holdings include Andersons Inc (ANDE) at 2.40%, Universal Corp (UVV) at 2.38%, and Lakeland Financial Corp. (LKFN) at 2.38%.
KSCD carries an expense ratio of 0.51%.
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