Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Are you aware of any research or readily-available offerings (funds or ETFs) that specifically attempt to strike balance between F/F, Quality, and dividends, or is that what is behind offerings such as QDF?
Thank you.
PS: Looked a little closer at links that appeared in Ted's original reference to your article, and turned up this at M* [Free, but registration required] on quality and dividends:
I think the Morningstar article on hidden quality in dividend ETFs makes a lot of sense with some caveats. The author rightly points readers not just to dividend paying ETFs but ones that emphasize sustainable dividends as high dividends by themselves can be from junky low-quality companies. When I interviewed the folks at State Street about their quality mix ETFs they said that dividends were a hybrid factor of both quality and value. A high dividend yield indicates value as the lower the price goes on a stock the higher the yield on its existing dividend will be. Meanwhile a company that has the wherewithal to pay a consistent dividend can indicate quality.
That said, not all quality companies are dividend payers and not all dividend payers are quality companies. So if you buy a dividend oriented quality ETF like QDF you will be leaving out those growth-oriented quality companies that choose to invest in R&D, debt reduction or share buybacks instead of paying dividends. Think of how many years Apple and Microsoft went without paying dividends yet had rock solid balance sheets and were high quality companies.
As for finding an ETF that combines all of the FF factors, quality and dividends, I'm not sure on that. There is a way certainly to do it with two ETFs, but maybe not one. The new State Street quality mix ETFs combine value, low vol and quality but without dividends and without small caps, another FF factor. Perhaps more intriguing for you though might be the new "actively managed" or "enhanced" ETFs from iShares. The iShares Enhanced U.S. Large-Cap ETF (IELG) says it is managed with a focus on " quality, value and size factors." And its expense ratio is just 0.18%. Since it is actively managed, it wouldn't surprise me if its managers are looking at dividends. But combining it with a dividend ETF or the excellent VDIGX which you already own might work well. ishares.com/us/products/239529/ishares-enhanced-us-largecap-etf Check out State Streets SPDRS as well: https://spdrs.com/product/fund.seam?ticker=QWLD
The Barrons and M* links go to articles that require a subscription and consequently are of no use to me. The info is inaccessible, I cannot mentally participate.
@LewisBraham I am glad that Ted's posting method agrees with you, and that you can rest easier with the belief your career in financial journalism remains on-track and your financial well-being is a little bit more secured. Continue with your groundbreaking research, the world awaits.
Heezsafe, If you want to get into the rather tiresome free vs anti-free content debate again, I suggest you read this: https://nplusonemag.com/issue-20/the-intellectual-situation/the-free-and-the-antifree/ I'm sorry but I'm not into writing about ETFs and mutual funds for the "cultural capital." I assume you have another day job, but I don't.
@heezsafe not sure about the M* article, but the barrons one should be accessible if you google the article title, might need to have some trackers or cookies temporarily turned on though.
ibartman, you're welcome. Regarding the IELG vs DFEOX comparison, one year's performance isn't very meaningful, but it doesn't surprise me that DFEOX has done well. DFA is a very interesting shop and has unique advantages other index/quant shops don't always have. Here's a description of DFA's trading strategies in a Barron's article that highlights one of its key advantages: "TRADING IS ALSO a crucial factor in DFA's outperformance. Index funds trade in baskets -- whenever a stock is added or dropped from the index, it's bought or sold almost immediately, which can drive the price up or down. Similarly, active managers often want to get into or out of a stock quickly. DFA, however, takes a more methodical, opportunistic approach to trading. There's never pressure to buy or sell a fund within a certain time frame. Instead, it serves as a market-maker for the 14,000 stocks it owns, offering to sell when frenzied buying has sent the bid higher, and taking a stock off another trader's hands when the shares can be acquired cheaply. Every morning, traders get a list of stocks the firm wants to buy or sell, but instead of mandated trading orders, the trading desk determines if conditions are good for each transaction. "We go into the market and see where the most anxiety is and where we can trade at favorable prices," says Booth. "We provide liquidity." The pity is DFA's funds must be purchased through a financial adviser who charges a fee on top of DFA's.
Comments
Barrons - How ETFs Define Quality
By LEWIS BRAHAM, Aug. 30, 2014
[Subscription Required]
Comments to the following post included additional 'Quality' links:
Jeremy Grantham/GMO Asset Class Performance Forecasts [rjb12]
http://www.mutualfundobserver.com/discuss/discussion/comment/45441/
I am recent investor in SPHQ [Powershares S&P High Quality ETF], and have been a longtime owner of VDIGX [Vanguard Dividend Growth Fund].
I find the combination of quality and dividends appealing, like recent QDF offering mentioned in your Barron's article.
I am struggling with how to reconcile quality, dividends and long-noted "Fama French" factors.
Links for others re Fama-French:
http://en.wikipedia.org/wiki/Fama–French_three-factor_model
http://www.altruistfa.com/readingroomarticles.htm#FamaFrench
Are you aware of any research or readily-available offerings (funds or ETFs) that specifically attempt to strike balance between F/F, Quality, and dividends, or is that what is behind offerings such as QDF?
Thank you.
PS: Looked a little closer at links that appeared in Ted's original reference to your article, and turned up this at M* [Free, but registration required] on quality and dividends:
M*: Hidden Quality in Dividend ETFs
Dividend ETFs ... efficient exposure to the quality and value premiums
Abby Woodham, 04/30/2014
I think the Morningstar article on hidden quality in dividend ETFs makes a lot of sense with some caveats. The author rightly points readers not just to dividend paying ETFs but ones that emphasize sustainable dividends as high dividends by themselves can be from junky low-quality companies. When I interviewed the folks at State Street about their quality mix ETFs they said that dividends were a hybrid factor of both quality and value. A high dividend yield indicates value as the lower the price goes on a stock the higher the yield on its existing dividend will be. Meanwhile a company that has the wherewithal to pay a consistent dividend can indicate quality.
That said, not all quality companies are dividend payers and not all dividend payers are quality companies. So if you buy a dividend oriented quality ETF like QDF you will be leaving out those growth-oriented quality companies that choose to invest in R&D, debt reduction or share buybacks instead of paying dividends. Think of how many years Apple and Microsoft went without paying dividends yet had rock solid balance sheets and were high quality companies.
As for finding an ETF that combines all of the FF factors, quality and dividends, I'm not sure on that. There is a way certainly to do it with two ETFs, but maybe not one. The new State Street quality mix ETFs combine value, low vol and quality but without dividends and without small caps, another FF factor. Perhaps more intriguing for you though might be the new "actively managed" or "enhanced" ETFs from iShares. The iShares Enhanced U.S. Large-Cap ETF (IELG) says it is managed with a focus on " quality,
value and size factors." And its expense ratio is just 0.18%. Since it is actively managed, it wouldn't surprise me if its managers are looking at dividends. But combining it with a dividend ETF or the excellent VDIGX which you already own might work well. ishares.com/us/products/239529/ishares-enhanced-us-largecap-etf
Check out State Streets SPDRS as well: https://spdrs.com/product/fund.seam?ticker=QWLD
@LewisBraham I am glad that Ted's posting method agrees with you, and that you can rest easier with the belief your career in financial journalism remains on-track and your financial well-being is a little bit more secured. Continue with your groundbreaking research, the world awaits.
If you want to get into the rather tiresome free vs anti-free content debate again, I suggest you read this: https://nplusonemag.com/issue-20/the-intellectual-situation/the-free-and-the-antifree/
I'm sorry but I'm not into writing about ETFs and mutual funds for the "cultural capital." I assume you have another day job, but I don't.
Thank you for the suggestion of IELG. Somehow I missed it before, but it looks interesting.
- Seems to be somewhat similar (in the sense of "skewed" market cap) to DFEOX or Northern's TILT.
- The IELG expense ratio (18 bps) is certainly low.
Have to see how it performs [1] .... Thanks again.[1] From Ted's link below, recently - at least - not so well. ;^)
Happy Labor Day,
Ted
http://www.marketwatch.com/tools/mutual-fund/compare?Tickers=DFEOX+IELG&Compare=Returns
The pity is DFA's funds must be purchased through a financial adviser who charges a fee on top of DFA's.
To paraphrase a quote from the movie The Sand Pebbles, "that's his rice bowl."
I wouldn't expect that person to work and provide his services for free.