Launched in July 2014, the First Trust Rising Dividend Achievers ETF (RDVY) stands as a passively managed exchange-traded fund (ETF) designed to offer broad exposure to the Large Cap Value segment of the US equity market. Sponsored by First Trust Advisors, RDVY has amassed over $11.71 billion in assets, making it one of the larger ETFs aiming to mirror this specific segment of the US equity market.
Why Large Cap Value?
Large cap value companies, typically with market capitalizations exceeding $10 billion, are known for their stability, predictable cash flows, and lower volatility compared to mid and small cap companies. They tend to have lower price-to-earnings and price-to-book ratios, indicating a potential undervaluation compared to their growth counterparts. While value stocks may exhibit lower sales and earnings growth rates, their long-term performance often surpasses growth stocks in various market conditions. However, they may underperform growth stocks during strong bull markets.
Cost Efficiency and Dividend Yield
Expense ratios are a crucial factor in determining an ETF’s long-term return. Lower expense ratios can significantly impact returns, particularly over extended periods. RDVY boasts an annual operating expense ratio of 0.49%, placing it in line with many peer products within its segment. Additionally, it has a 12-month trailing dividend yield of 1.83%, which is attractive for investors seeking income generation.
Sector Exposure and Top Holdings
Despite the diversification offered by ETFs, it’s essential to analyze a fund’s holdings before investing. Fortunately, most ETFs are transparent and disclose their holdings daily. RDVY’s largest sector allocation is to Financials, representing approximately 42% of the portfolio. Information Technology and Consumer Discretionary round out the top three sectors. D.R. Horton, Inc. (DHI) accounts for roughly 2.41% of total assets, followed by Mueller Industries, Inc. (MLI) and Aflac Incorporated (AFL). The top 10 holdings collectively constitute about 22.38% of the total assets under management.
Performance and Risk
RDVY seeks to track the performance of the NASDAQ US Rising Dividend Achievers Index, excluding fees and expenses. This index is designed to provide access to a diversified portfolio of companies with a history of dividend payments. The ETF has delivered approximately 12.45% in returns year-to-date and about 23.75% over the past year (as of September 17, 2024). Its trading range over the past 52 weeks has been between $43.44 and $58.75. With a beta of 1.11 and a standard deviation of 19.70% over the trailing three years, RDVY presents a medium risk profile. With about 51 holdings, it effectively diversifies company-specific risk.
Alternatives
RDVY holds a Zacks ETF Rank of 2 (Buy), which considers factors like expected asset class return, expense ratio, and momentum. This ranking makes RDVY a compelling choice for investors seeking exposure to the Large Cap Value segment of the market. Several other ETFs operate within this space, including the Schwab U.S. Dividend Equity ETF (SCHD) and the Vanguard Value ETF (VTV). SCHD boasts $60.60 billion in assets, while VTV manages $126.51 billion. SCHD has an expense ratio of 0.06%, whereas VTV charges 0.04%.
Bottom Line
Passively managed ETFs are gaining traction among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency. They are excellent vehicles for long-term investors seeking to diversify their portfolios. RDVY, with its focus on dividend-paying large-cap value companies, provides a compelling option for investors seeking exposure to this specific segment of the market.
