Value investing is one of the most popular strategies utilized by long-term investors. Below, we shed light on a unique ETF that aims to provide value and income for its shareholders:
Inside DVP's Strategy
Making its debut in 2014, Tiedemann Wealth Management’s Deep Value ETF (DVP ) targets dividend-paying companies that are undervalued. DVP tracks the TWM Deep Value Index, which is comprised of 20 securities selected from the S&P 500 that have positive earnings and returns on invested capital, generate free cash flow, and currently pay a dividend.
The selected companies are weighted based on a rules-based assessment of their valuations so that stocks that are most attractively valued receive a higher weight. The full Index is reconstituted annually in September, and the portion of the Index with the 10 smallest weighted companies is reconstituted quarterly in December, March and June.
Be sure to also read 25 Things Every Financial Advisor Should Know About ETFs.
DVP's Portfolio
As mentioned, DVP’s portfolio consist of 20 individual holdings, the majority of which are mid and large-capitalization companies. There is also some exposure to giant-cap stocks, and minimal allocations to small-cap companies. As of March, 2015, the fund’s portfolio allocated roughly one-quarter of its total assets to consumer cyclical equities, and another 25% to communication services.
Energy, technology and health care equities also receive meaningful allocations. Every quarter, however, the portfolio’s smallest weightings are reconstituted, meaning the sector allocations may also be affected.
Considerations on DVP's Performance
Given DVP’s targeted approach, it is important to note that the performance of this fund is greatly dependent on the performance of only a handful of stocks: the fund’s top three holdings account for roughly one-quarter of total assets under management. Another potential bias in DVP’s portfolio is its hefty allocation to only a few sectors, one of which is consumer cyclicals, which tend to exhibit higher levels of volatility than “safer” sectors such as consumer staples or utilities.
How to Use DVP in a Portfolio
DVP’s strategy is compelling for traditional buy-and-hold, and therefore can be used as either a core or tactical holding. Because of the fund’s focus on undervalued companies, DVP has a relatively attractive potential for capital appreciation and excess returns. In addition, the fund also provides a relatively stable income stream, which is distributed at least once a year.
DVP charges an expense ratio of 0.80%, which is more expensive than the average fee charged charged by ETFs in our Large Cap Value Equities Category.
The Bottom Line
For those looking for an efficient way to implement both value and dividend strategies, the Deep Value ETF (DVP ) is a compelling option. Its focus on undervalued companies with strong fundamentals and a dividend paying history allows investors to benefit from both capital appreciation and steady current income streams. As always, be sure to do your own research to determine whether or not this ETF fits into your overall strategy before making an allocation.
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Disclosure: No positions at time of writing.
