Running a regression model of the Russell 2000 Dividend Growth Index, FTSE Russell found that the dividend growth strategy exhibited relatively low sensitivity to broad market moves, which has lead to lower overall volatility and drawdowns for the index and SMDV. Historical data revealed that higher dividend paying and dividend growing stocks tend to have better valuations. Lastly, the portfolio’s exposure to quality or companies with strong profitability growth, high return on assets and low volatility, among other things, have contributed to the outperformance.
“The factor analysis shows that, by selecting companies that have successfully increased their dividend payments over many years, the Russell 2000 Dividend Growth Index occupies a corner of the small cap space that is high in the Quality factor,” Goodwin said. “The returns to the Small Cap and Value factors have varied significantly over the last couple of years, but the Market Beta and Quality factors have shone through, buoying up the performance of the index. Those two factors combined with the Small Cap factor makes for three strong drivers of index performance.”
SMDV has a large tilt toward the utilities sector at 25.2%, followed by financials 19.7%, industrials 15.5%, consumer staples 11.5% and materials 10.4%. The underlying index shows a dividend yield of 2.39% and dividends are paid on a quarterly basis. The ETF comes with a 0.40% expense ratio.