New Fund: Overview and Analysis of UDI – USCF Dividend Income Fund

This newly created (June 2022) actively managed ETF’s goal is to seek a high level of current income and growth of income. 

Per the fund’s website, they seek to achieve this objective by investing in U.S. exchange-traded dividend-paying and dividend-growth companies that meet the Fund’s environmental, social and governance (ESG) criteria. 

UDI’s advisors conduct bottom-up fundamental research to evaluate companies and uses quantitative research to compare potential investments. 

Companies are assessed on the following key metrics:

The Fund strives to hold 30 to 45 holdings at a time.

Highlights:

Fund started 6/8/2022

Expense Ratio: 0.65%

Fund size: $5.33 million

Current Yield: 

As the fund is new, it has only had 2 dividend payments.  As with all ETFs, the dividends paid each month will vary depending on the holding’s dividend payment schedule.

UDI’s dividend payments so far:

July $0.08

August $0.0599

If this payment trend continues, the yield as of today would be approximately 3.54% but is subject to change based on the actual payouts.  A true yield will not be able to be determined until a full year has passed.

Payment Dates: Monthly (end of the month)

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Investments held in the fund:

33 holdings

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Top 10 of the fund as of 9/16/2022 (39% of the Fund)

Johnson & Johnson – 4.79%

Texas Instruments – 4.11%

Snap-On Inc – 4.05%

Everest RE Group LTD – 3.98%

Genuine Parts Co – 3.94%

Abbvie Inc – 3.83%

Merck & Co Inc – 3.64%

JP Morgan Chase – 3.63%

Walgreens Boots Alliance – 3.54%

Comcast Corp – Class A – 3.51%

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Sector Weights (as of 8/31/2022)

Healthcare – 29.67% 

Financials – 21.17%

Technology – 12.59%

Consumer Cyclicals – 12.01%

Real Estate – 8.44%

Industrials – 7.32%

Communication – 4.66%

Consumer Defensive 3.10%

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Returns:

Since inception: -7.03%

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Commentary:

I am always on the lookout for new dividend growth investing ideas and I recently came across this new fund.  Upon first review of the investment criteria and method, I was interested in getting more information.  The holdings are all solid dividend growers, with a tilt to value.  As someone who likes to research individual names, I like that there is an active manager doing the research.  And then I saw the expense ratio.  0.65% annual expense ratio.  While this is not unheard of for actively-managed ETFs, it is 10x the expense ratio of SCHD, one of the most popular dividend growth ETFs.  Can the active management of the fund offer higher returns to justify the expense?

UDI was started in June of 2022, so it is very new.  This fact makes it hard to fully evaluate the fund’s performance or its investment approach but there are some facts that we can evaluate.

The fund company (USCF) has other funds, including the United States Oil Fund (USO) that has been around since 2006, and other commodity-related funds including natural gas, copper, gasoline, and Brent oil.  So while this fund is new, the fund company is an experienced player in the actively managed fund space.

It is an actively managed fund so the fund managers decide the holdings, unlike an index-based ETF that tracks an outside index.  This approach gives the managers complete flexibility to pick and choose the investments they want at the allocation that they want.  According to the Fund’s website, the advisors use a bottom up approach to picking stocks based on the criteria above.  It should be noted that this Fund is heavily influenced by ESG factors, so there will be no oil, gas, coal, alcohol, tobacco, firearms, etc. investments. 

The monthly payout is intriguing since this can smooth out the dividend payments received for those who are using the dividends.  

The top 10 holdings are well known dividend names that we all probably own, but therein lies the problem, why pay such a high expense ratio if we can just invest in them ourselves individually or through a low cost option like SCHD?

The Fund’s holdings have some overlap compared to SCHDs Top 10 holdings of:

The high expense ratio and unproven results will lead me to not buy this fund.  After a track record of results has been proven, I can see merit in having a team do the research for me, but their results have to be worth the price they are charging, which is to be determined.

Disclosure:  I do not own UDI.