The Russell 2000 Dividend Growers ETF: A Long-Term Investment with Questionable Quality
In my previous article, I delved into the world of the iShares Select Dividend ETF (SMDV), specifically focusing on its exposure to Russell 2000 constituents that have been consistently growing their dividends for at least a decade. However, since then, SMDV has underperformed the S&P 500 index, leaving investors wondering if this ETF is still a worthy addition to their portfolios.
Underperformance and Detractors
The underperformance of SMDV can be attributed to several sectors, with financials being among the key detractors. This sector, which makes up a significant portion of the Russell 2000 index, has faced headwinds due to rising interest rates and regulatory scrutiny. As a result, SMDV’s returns have been soft, leaving some investors questioning its long-term potential.
Quality Concerns
Furthermore, the quality of SMDV’s holdings remains a concern. Only 35% of the ETF’s constituents have a B- Quant Profitability rating or higher. This means that a significant portion of the companies in the ETF are not generating consistent profits, which can be a red flag for long-term investors.
Impact on Individual Investors
For individual investors, the underperformance and quality concerns of SMDV may mean reconsidering their allocation to this ETF. Depending on the size of the investment and the overall portfolio composition, moving funds to other dividend-focused ETFs or individual stocks may be a more prudent choice. It’s essential to remember that every investment comes with risks, and it’s crucial to understand the specific risks associated with SMDV before making any decisions.
Impact on the World
On a larger scale, the underperformance of SMDV and other dividend growth ETFs could have implications for the broader market. If investors continue to shy away from these funds, there may be less demand for the stocks of consistently profitable companies. This, in turn, could lead to a decrease in the overall value of these companies and potentially impact economic growth.
Conclusion
The Russell 2000 Dividend Growers ETF (SMDV) offers exposure to a unique subset of the stock market: companies that have consistently grown their dividends for at least 10 years. However, recent underperformance and quality concerns have left some investors questioning the long-term potential of this ETF. Individual investors may want to reconsider their allocation to SMDV, while the broader impact on the market remains to be seen.
- SMDV has underperformed the S&P 500 index, with financials being a significant detractor.
- Only 35% of SMDV’s holdings have a B- Quant Profitability rating or higher.
- Individual investors may want to reconsider their allocation to SMDV.
- The broader impact on the market remains to be seen.
