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What’s Now Inside Some Fundamentally Focused ETFs

Many of us were prepping for year-end (or on vacation in Belize, in my case) in December. However, index providers were hard at work to ensure certain ETFs fully reflected the investment criteria advisors have come to expect. Because while the term “passive” has been used to describe index ETFs, changes occur for most of them on at least an annual basis. 

Last week, I highlighted what was added or removed from prominent S&P-based growth and value index ETFs. However, this time I wanted to highlight other fundamentally focused strategies that made preplanned adjustments. In full disclosure, these all are tracking indexes that are part of the VettaFi family. I’m thankful some of my colleagues were focused on keeping things current and not snorkeling. 

The New Puppies in a Dividend ETF 

The ALPS Sector Dividend Dogs ETF (SDOG) has $1.1 billion in assets. It follows a simple strategy seeking to provide a 4.4% yield. It equally weights the five highest-yielding U.S. large-cap stocks in 10 sectors. The fund rebalances annually in December.  

For example, in the energy sector, SDOG added Chevron and Exxon Mobil, while dropping Devon Energy and Phillips 66. In financials, Citizens Financial Group and Regions Financial joined, replacing Citigroup and Franklin Resources. Meanwhile, within information technology, Texas Instruments took the place of Intel. 

The VictoryShares Free Cash Flow ETF (VFLO) has $125 million in assets. It provides a combination of quality and growth factor exposure but is reconstituted quarterly. Following the mid-December changes, free-cash-flow-focused VFLO looks different than before. 

Companies like NRG Energy, Paccar, Pfizer, and Toll Brothers were added to the index. They took the place of Booking Holdings, Microchip Technology, Nucor, and Skyworks Solutions. VictoryShares launched a small-cap version of VFLO in late December 2023 as well. 

An Updated Medical Breakthrough Strategy  

The ALPS Medical Breakthroughs ETF (SBIO) has just over $100 million in assets. The ETF provides exposure to small- and midcap biotechnology companies that have one or more drugs in late-stage FDA clinical trials. It is reconstituted quarterly — most recently in December. In addition to traditional additions and deletions, three constituents were removed after being acquired in the fourth quarter. An additional four constituents of SBIO’s are involved in pending transactions from companies such as AbbVie and Bristol-Myers Squib. 

Examples of recently added positions include Intellia Therapeutics, MoonLake Immunotherapeutics, and Revolution Medicines. Stocks that were removed from SBIO included Amicus Therapeutics, Immunovant, and Insmed. In general, stocks are often removed due to market-cap or liquidity constraints.  

It’s HIPS to Be Square 

The GraniteShares HIPS US High Income ETF (HIPS) has $60 million in assets. It provides diversified exposure to four alternative income categories — MLPs, REITs, business development companies (BDCs) and closed-end funds. HIPS’ reconstitution in December moved the fund into constituents with the highest combination of yield and low volatility.  

See related: “What Makes That Ticker Tick

HIPS added Park Hotels & Resorts, a REIT that paid a special dividend following an asset sale. This replaced Physicians Realty Trust, which is being acquired. Within the BDC segment, Fidus Investment Corp was added , while Barings BDC was removed due to high price volatility. Following the changes, HIPS’ indicated dividend yield was 11%. 

VettaFi LLC (“VettaFi”) is the index provider for SDOG, VFLO, SBIO, and HIPs, for which it receives an index licensing fee. However, SDOG, VFLO, SBIO, and HIPs are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SDOG, VFLO, SBIO, and HIPs.

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