Businesses with excess cash have a choice: move it off the balance sheet as a dividend, which is often a taxable event, or repurchase shares, where taxes can be more easily managed. The latter can make a ton of economic sense, which is why share buybacks have become the other dividend. Jeff Weniger discusses strategies that focus on buybacks and shareholder yield.
Valuing companies based on dividends is well-documented and understood. In practice, though, this theory has been stressed over the last decade. Matt Wagner illustrates the impact on fundamentals from an approach that combines dividends and profitability.
A well-known anomaly among investment professionals, the “size premium,” suggests a portfolio of small-cap companies—particularly small-value companies—would be expected to outperform a portfolio of larger companies over the long run. Matt Wagner examines an additional factor that can complement size: quality.
Due to the strong performance of quality strategies—and the resilience of the factor during times of market volatility—capital has flowed into quality-focused funds this year. A lot of factor discussions are U.S.-centric, but quality has had a significant performance advantage in developed international markets. Matt Wagner discusses our International Hedged Quality Dividend Growth strategy.
In his 2018 letter to Berkshire Hathaway shareholders, Buffett wrote that stock performance converges with business performance over time if the original purchase price is not excessive. Jeremy Schwartz and Kara Marciscano make the case for our quality dividend growth strategy, with aggregate profitability that is comparable to Berkshire’s equity portfolio and a valuation below the S&P 500.
If factor investing makes logical sense—and we think it does—the way to operate an ETF business is to have conviction and reasonable fees. Using simple arithmetic, Jeff Weniger calculates the “hurdle rate,” which quantifies how well active selections need to perform to cover their expense ratios.