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The Amplify CWP Enhanced Dividend Earnings Fund (NYSEARCA:DIVO) offers traders publicity to a curated portfolio of top quality blue-chip firms with a historical past of dividend and earnings development.
The fund has sturdy historic returns and is at the moment yielding 4.8%. I imagine it could be appropriate for income-oriented traders.
Fund Overview
The Amplify CWP Enhanced Dividend Earnings Fund is an actively managed ETF that offers traders publicity to large-cap firms with a historical past of dividend development. The fund additionally has a tactical name writing technique on particular person shares. DIVO has over $2.5 billion in property and prices a 0.55% expense ratio (Determine 1).
Determine 1 – DIVO fund particulars (amplifyetfs.com)
Technique
DIVO’s inventory choice technique focuses on blue-chip shares with a historical past of earnings and dividend development. First, the supervisor, Capital Wealth Planning (“CWP”) screens the funding universe for firms with sturdy historic dividend and earnings development. Then, CWP decides what sectors to over- or under-weight. Lastly, a portfolio of 20-25 shares is chosen (Determine 2).
Determine 2 – DIVO inventory choice technique (amplifyetfs.com)
The DIVO ETF additionally tactically write lined calls on particular person shares to generate further earnings. The tip result’s a portfolio that advantages from the capital appreciation of the core portfolio and pays 2-3% in annual dividend earnings plus a further 2-4% in premium earnings from promoting lined calls (Determine 3).
Determine 3 – DIVO advantages from writing calls (amplifyetfs.com)
Portfolio Holdings
Determine 4 exhibits DIVO’s present sector allocation. The fund’s largest sector weights are healthcare (21%), vitality (13%), expertise (13%), and financials (12%).
Determine 4 – DIVO sector allocation (amplifyetfs.com)
Observe that relative to the market as represented by the SPDR S&P 500 ETF Belief (SPY) as proven in determine 5, the DIVO fund has giant overweights in healthcare (21% vs. 15%) and vitality (13% vs. 5%) and a big underweight in expertise (13% vs. 26%) and communication companies (2% vs. 8%).
Determine 5 – SPY sector allocation (amplifyetfs.com)
Though DIVO is a concentrated fund with solely 20-25 holdings (it at the moment has 23 positions), the person positions are extra equal-weighted, with place weights starting from 1.7% to five.4% and averaging 4.0% (Determine 6).
Determine 6 – DIVO high 10 holdings (amplifyetfs.com)
Returns
The DIVO ETF has carried out effectively since inception in late 2016, with spectacular 3 and 5Yr annualized returns of 11.0% and 10.5% respectively to December 31, 2022. Regardless of markets struggling a steep drawdown in 2022, the DIVO ETF was comparatively unscathed with a -1.5% return (Determine 7).
Determine 7 – DIVO historic returns (amplifyetfs.com)
Distribution & Yield
As designed, the DIVO ETF pays a excessive distribution, with a trailing 12 month distribution of $1.71 or a trailing yield of 4.8%. DIVO’s distribution is paid month-to-month and In search of Alpha grades DIVO’s distribution a B+ (Determine 8).
Determine 8 – DIVO distribution grade (In search of Alpha)
DIVO’s distribution has additionally grown at a formidable 22.2% CAGR previously 5 years, though the 3Yr CAGR is way slower at 1.2%. Buyers ought to observe the 3Yr dividend development CAGR price is skewed decrease by a particular distribution of $0.86 / share that was paid in 2019.
DIVO vs. SCHD; Energetic vs. Passive
Judging by the data and information I’ve reviewed to this point, the DIVO seems like an distinctive fund. It has generated excessive historic returns and was in a position to navigate the difficult 2022 interval comparatively unscathed. It pays a excessive distribution yield that has been rising at a quick tempo. The one query I’ve in my thoughts is how does the DIVO ETF evaluate, relative to my present excessive dividend choose, the Schwab U.S. Dividend Fairness ETF (SCHD)?
Determine 9 exhibits a comparability of DIVO vs. SCHD utilizing my proprietary scorecard. The DIVO ETF is an energetic ETF and prices a a lot greater expense ratio, which is comprehensible.
Determine 9 – DIVO vs. SCHD (Writer created with fund particulars and distribution from In search of Alpha and returns and threat metrics from Portfolio Visualizer)
When it comes to returns, we will see that SCHD has carried out higher traditionally, though DIVO outperformed throughout 2022.
On volatility and threat, the DIVO ETF has decrease volatility and a smaller most drawdown. Regardless of having decrease returns, its decrease volatility permits it to edge out SCHD on the Sharpe Ratio (i.e. DIVO has barely higher threat adjusted return).
DIVO additionally has a better dividend yield as a result of it generates further premium earnings from writing calls, and its distribution has grown at a sooner price.
All-in-all, the DIVO ETF is a effective challenger to the SCHD. For income-oriented traders, its greater distribution yield could outweigh the decrease historic returns and better charges.
Attainable Threat With DIVO
For me, if there may be to be any criticism of the DIVO ETF, it must be on the energetic nature of its funding course of. Having been a fund supervisor myself, I can inform first hand that this can be very troublesome to outperform over the long term, year-after-year.
In line with a latest FT article, “over the last decade to mid-2022 a mere 12 per cent of US fairness funds beat the market.” Educational research present that only a few energetic managers are in a position to constantly outperform their friends and benchmarks.
Energetic managers have biases, strengths, and weaknesses. What works in a single setting could not work in one other. For instance, whereas DIVO has an excellent efficiency monitor file over 5 years, YTD to January 20, 2023, the fund has been flat and is ranked within the a centesimal percentile.
Determine 10 – DIVO annual returns (morningstar.com)
Whereas this underperformance is probably going as a result of brief measurement interval (3 weeks), it does spotlight a possible threat.
Moreover, writing name choices expose the fund to proper tail threat, i.e. particular person shares could rally considerably as a result of some unexpected information or occasion (takeover for instance), and the fund misses out as a result of it has bought the ‘upside’.
Conclusion
The DIVO ETF offers traders publicity to a curated portfolio of top quality blue-chip firms with a historical past of dividend and earnings development. The fund has delivered sturdy historic returns, together with being comparatively unscathed from a difficult 2022. It’s at the moment yielding 4.8% from a mix of portfolio dividends and premium earnings from writing calls. I just like the DIVO ETF and imagine it could be appropriate for income-oriented traders.
