Grab Small Caps. Reduce Volatility. The VictoryShares CSB ETF

Small cap equities are hot and dividend stocks are on the comeback trail. Investors can tap into both themes with the VictoryShares U.S. Small Cap High Dividend Volatility Weighted Index ETF (CSB).

CSB, which debuted in July 2015, follows the CEMP US Small Cap High Dividend 100 Volatility Weighted Index. The index caps sector weights at 25% and can feature fewer than 100 stocks due to the positive earnings mandate.

VictoryShares ETFs, including CSB, take a different approach to managing volatility. While low-vol ETFs may only hold companies that tend to exhibit smaller swings using the factor as a selection, the VictoryShares suite starts with the broad market and screens for companies with four quarters of positive earnings. Those stocks are then weighted based on their standard deviation over the past 180 trading days. Stocks with lower volatility are given higher weightings and stocks with greater volatility are given lower weightings. Ultimately, all securities that pass the earnings criteria are present, just at different weights.

CSB 1 Year Performance

Make the CSB Call Now

CSB is a relevant in 2021 for multiple reasons. Small caps are focused on the domestic economy and have less direct exposure to global geopolitical uncertainty and currency risks. Large cap companies often have an international footprint, which may be affected by overseas risks and a strengthening U.S. dollar.

CSB is worth a look as the economy rebounds from the ill effects of the COVID-19 pandemic. While investors may flock to the relative safety of large cap equities during a recession to lessen the blow of market volatility and provide a cushion during market downturn, small cap performance is worth watching as the economy exits a recession.

Dividends are in demand as fixed-income investors face a lower-for-longer interest rate environment. The Federal Reserve is expected to maintain its near-zero interest rate policy to help push inflation up, bolster the economy, and lower the unemployment rate. The Fed has already stated it was willing to let inflation run higher to offset years inflation fell below its 2% target.

Companies are increasingly confident in growing dividends again, even as another surge in Covid-19 cases threatens earnings. According to FactSet estimates, S&P 500 per-share earnings are expected to bounce 22% in 2021—to above 2019 levels.

CSB yields 3.62%, and is up 7.75% to start 2021.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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