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.