The Capital Group Dividend Value ETF (CGDV) has been outperforming the broader market since its launch, and it’s doing it with a nice mix of both large-cap growth stocks and rock-solid value and dividend stocks.
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I’m bullish on this popular, relatively new $9.4 billion ETF from blue-chip asset manager Capital Group. My stance is based on its stellar performance out of the gate and its actively managed portfolio, which features a sensible combination of powerhouse growth and tech stocks with more stable value and dividend stocks.
This mix, and the fact that CGDV is outperforming the broader market with less exposure to large-cap tech, seems particularly compelling at a time when the broader market is rotating from more large-cap growth stocks to more defensive sectors.
What Is the CGDV ETF’s Strategy?
Capital Group explains that CGDV “seeks to produce consistent income that exceeds the average yield of the S&P 500 by focusing on companies that pay dividends or have the potential to pay dividends.”
Like other Capital Group ETFs, this is an actively managed ETF in which a team of experienced portfolio managers invest in their highest-conviction ideas. In the case of CGDV, the fund’s five portfolio managers have a remarkable 164 years of investment industry experience between them.
An Encouraging Start
CGDV’s active approach has worked well for the fund’s investors so far. Since launching in February 2022, CGDV has generated an impressive total return of 50%. This compares favorably to the broader market. The SPDR S&P 500 ETF Trust (SPY) generated a total return of 29% over the same time frame.
While it has to be said that this isn’t a very long track record, it is a very promising start. Furthermore, this short time frame still encompasses some drastically different market landscapes, ranging from the bear market of 2022 to the raging bull market of 2023, showing that CGDV has the chops to adapt and prosper in different market environments.
A Balanced Approach
CGDV owns 53 stocks, and its top 10 holdings account for 39.9% of the fund. Below, you’ll find an overview of CGDV’s top 10 holdings using TipRanks’ holdings tool.
As you can see, CGCV owns a mix of large-cap tech powerhouses like Apple (AAPL), Microsoft (MSFT), and Meta Platforms (META). It also owns dividend and value stocks from more defensive sectors like Healthcare, Financials, and Consumer Staples, including Philip Morris (PM), British American Tobacco (BTI), and American International Group (AGI). Industrials are also well-represented through the likes of Raytheon (RTX), GE Aerospace (GE), and Carrier Global (CARR).
While they haven’t received the same plaudits as the top tech stocks, holdings like Raytheon and GE Aerospace have quietly produced phenomenal gains of 37.4% and 85.4%, respectively, over the past year. The strong performance of these top holdings shows both the stock-picking acumen of CGDV’s portfolio managers as well as the importance of not overlooking these more value-oriented names.
This mix of growth and more defensive stocks seems like the right approach. This is especially true at a time when the broader market seems to be rotating from large-cap tech stocks that have seen huge gains recently to stocks from sectors with lower valuations that are just starting to heat up.
For example, over the past month, the tech-centric Nasdaq (NDX) is down 3.6%, while sectors like Financials and Healthcare, as represented through the Financial Select Sector SPDR ETF (XLF) and the Health Care Select Sector SPDR ETF (XLV), are up 5.8% and 2.6%, respectively, over the same time frame.
CGDV features a 17.8% weighting toward Technology, which is much lower than the broad market SPY ETF’s massive 31.3% weighting toward the sector. Instead, CGCV allocates a bit more of its portfolio to the aforementioned sectors like industrials, healthcare, and consumer staples.
I like the fact that CGDV features a lower exposure to these higher-multiple tech stocks but doesn’t eschew them entirely. We know that at some point, the market will come back around to large-cap growth, so avoiding them altogether would not be the ideal strategy.
CGDV’s well-balanced portfolio is also highly rated by TipRanks’ Smart Score System. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating.
An impressive seven out of CGDV’s top 10 holdings receive Outperform-equivalent Smart Scores of 8 or above, including the aforementioned Meta Platforms, UnitedHealth Group, and Philip Morris, which all receive “Perfect 10” Smart Scores. CGDV itself features an Outperform-equivalent ETF Smart Score of 8 out of 10.
A Modest Dividend
As the name implies, CGDV is a dividend payer, although its yield of 1.5% is hardly enough to attract the attention of pure dividend investors. However, the dividend contributes to the fund’s total returns, which have been compelling so far, as discussed above. There’s also the possibility that CGDV can raise its dividend payouts over time.
How High Is CGDV’s Expense Ratio?
CGDV charges an expense ratio of 0.33%, meaning that an investor will pay $33 in fees on a $10,000 investment annually. While this is a bit higher than we are accustomed to seeing from some index funds, it isn’t an unreasonable fee for an actively managed fund, especially one that is performing as well as CGDV.
Is CGDV Stock a Buy, According to Analysts?
Turning to Wall Street, CGDV earns a Moderate Buy consensus rating based on 45 Buys, nine Holds, and zero Sell ratings assigned in the past three months. The average CGDV stock price target of $37.98 implies 9.6% upside potential from current levels.
A Smart Choice for the Current Market
I’m bullish on CGDV based on the stellar returns the fund has generated since its February 2022 inception. During this time, it has soundly outperformed the broader market and performed well in a variety of market environments.
I also like the fact that it is performing well while featuring less exposure to tech than the broader market, which is especially attractive during the current market rotation. CGDV’s well-balanced mix of tech, growth, and sensible blue-chip value/dividend stocks looks like a smart approach for the road ahead.
