Invesco Dividend Achievers ETF (PFM): A Look at This Large Cap Value ETF
The Invesco Dividend Achievers ETF (PFM) is a passively managed exchange-traded fund (ETF) that aims to track the NASDAQ US Broad Dividend Achievers Index. This index targets a diversified set of dividend-paying companies with a history of consistent annual dividend increases for at least 10 consecutive years. With over $697 million in assets, PFM provides investors with broad exposure to the Large Cap Value segment of the US equity market.
Key Takeaways:
- Focus on Dividend Growth: PFM invests in companies with a proven track record of increasing their dividends, making it appealing to investors seeking income and long-term growth.
- Large Cap Value Exposure: The ETF targets large-cap companies with lower-than-average valuations, potentially offering a blend of stability and value potential.
- Moderate Risk: With a beta of 0.83, PFM exhibits slightly lower volatility than the broader market, making it a relatively moderate risk investment option.
- Diversification: The ETF holds over 426 stocks, effectively diversifying company-specific risk.
- Competitive Expense Ratio: While PFM’s expense ratio of 0.53% is higher than some competitors, it remains within the average range for similar ETFs.
Investigating the Value of Large Cap Value
Investing in Large Cap Companies
Large cap companies, with market capitalizations above $10 billion, are generally considered stable investments. Their established size and revenue streams often translate into consistent cash flows, leading to less risk compared to smaller companies. However, it’s important to note that even large companies can be affected by market downturns.
Seeking Undervalued Stocks
Value stocks are characterized by lower price-to-earnings and price-to-book ratios compared to growth stocks. While growth stocks typically have higher earnings growth rates, value stocks can be attractive for investors seeking opportunities to acquire companies trading below their intrinsic worth. Historically, value stocks have outperformed growth stocks over long periods, though growth stocks may outperform during strong bull markets.
PFM’s Cost and Dividend Yield
ETF Expenses
Expense ratios are crucial for long-term ETF performance. Lower expenses can significantly impact overall returns. PFM’s expense ratio of 0.53% is slightly higher than some comparable ETFs, like the Schwab U.S. Dividend Equity ETF (SCHD) with a 0.06% expense ratio.
Dividend Income
PFM offers investors a current 12-month trailing dividend yield of 1.65%. This dividend income provides a steady stream of cash flow, making the ETF attractive for investors looking to generate passive income. However, it is crucial to remember that dividend yields can fluctuate based on market conditions and company performance.
PFM’s Composition and Top Holdings
Sector Exposure
PFM’s portfolio is heavily weighted towards the Information Technology sector at approximately 21.40%. Financials and Healthcare follow closely in terms of weighting. This sector allocation reflects PFM’s focus on companies with solid dividend histories, with many Information Technology companies having a strong track record of dividend growth in recent years.
Top Holdings
Apple Inc. (AAPL) is currently PFM’s largest holding, representing 4.31% of total assets. Microsoft Corp. (MSFT) and Broadcom Inc. (AVGO) are the next largest positions, demonstrating PFM’s investment in leading technology companies. The top 10 holdings constitute approximately 26.99% of PFM’s total assets under management.
Performance and Risk
Tracking Performance
PFM aims to replicate the performance of the NASDAQ US Broad Dividend Achievers Index, excluding fees and expenses. The ETF has achieved strong returns in recent years, with a gain of around 16.28% in 2024 and 23.33% in the past year (as of September 16, 2024). Over the past 52 weeks, the ETF has traded within a range of $35.25 to $46.01.
Assessing Risk
PFM’s trailing three-year beta of 0.83 and standard deviation of 13.92% indicate a moderate risk profile. While this is lower than the broader market, it signifies that the ETF can still experience volatility, particularly during market downturns.
Alternatives to PFM
Other Dividend-Focused ETFs
PFM’s strong performance, coupled with its focus on dividend growth, has made it a popular choice for value investors. However, there are other ETFs that offer similar exposure to the Large Cap Value segment with potentially lower expenses.
- Schwab U.S. Dividend Equity ETF (SCHD) has a significantly lower expense ratio of 0.06% and over $60 billion in assets.
- Vanguard Value ETF (VTV) offers another option with a 0.04% expense ratio and $125.5 billion in assets.
PFM: A Solid Choice for Value Investors
PFM offers a compelling opportunity for investors seeking diversified exposure to the Large Cap Value sector with a focus on dividend growth. Its moderate risk profile, strong performance, and competitive expense ratio make it a valuable option for long-term investors, particularly those seeking to generate passive income. However, investors should consider their individual financial goals and risk tolerance before investing in PFM or any other ETF.
