Table of Contents Show
At the end of 2023, investors had few complaints after major rebounds in stock and bond markets. But if the rally had a drawback—an antisilver lining—it was the lack of breadth in the market’s revival. Mega-cap growth stocks blew away small caps, value stocks, and sturdy dividend companies—star players that covered up their teammates’ middling performance.
The good fortune has widened out a bit in 2024, but many of last year’s trends spilled into this one. That has sparked lackluster returns for good ETFs covering bad sections of the market. Today, we’ll hit on three of them, all of which should fare well if their areas of focus can return to form.
3 Solid ETFs Off to a Slow Start in 2024
T. Rowe Price Dividend Growth ETF TDVG
iShares Core S&P Small-Cap ETF IJR
Vanguard Long-Term Bond ETF BLV
T. Rowe Price Dividend Growth ETF
Let’s start with T. Rowe Price Dividend Growth ETF, an actively managed fund that trades under the ticker TDVG. This strategy earns a Morningstar Medalist Rating of Gold but finds itself in a slump. It trailed the Russell 1000 Index by 13 percentage points in 2023, and it ranked in the large-blend peer group’s bottom quintile for this year to date through April 12.
The fund’s recent woes aren’t a total surprise. It focuses on financially healthy companies poised to grow their dividends over time. These firms—like UnitedHealth Group, for example—normally weather market downturns well but fall behind in rallies. The holdings that constitute TDVG have certainly lived up to that billing.
But there is reason for optimism. Manager Tom Huber boasts over three decades of investment experience and has artfully led this strategy since March 2000. From that point through March 2024, the mutual fund version’s risk-adjusted returns ranked in the best 10% of the large-blend category. It captured nearly 90% of the broad market’s upside over that span, making it more than just a bear-market ballast.
iShares Core S&P Small-Cap ETF
So far in 2024, it’s been double trouble for Silver-rated iShares Core S&P Small-Cap ETF, ticker IJR. Small caps as a whole have languished, and this fund has fared worse than most. The fund shed 3.2% for the year through April 12, ranking in the bottom 15% of the US small-blend category.
After years of trailing large-cap companies, small caps sport fairly attractive valuations. According to the Morningstar price/fair value ratio, they traded 18% below their fair value entering April 2024. Mid-caps came at just a 3% discount, and large caps at a 5% premium.
IJR is a great choice for small-cap believers. It tracks the S&P SmallCap 600 Index, whose liquidity and profitability screens filter out a lot of the junk that plagues more-lenient small-cap products. The benchmark is also market-cap-weighted. That approach isn’t quite as compelling as in the large-cap arena, but its cost efficiency allows the fund to charge just a 0.06% fee—far cheaper than its active rivals.
Vanguard Long-Term Bond ETF
Rounding out today’s list is Vanguard Long-Term Bond ETF. It trades under the ticker BLV and earns a Morningstar Medalist Rating of Gold.
Though you wouldn’t know it by the fund’s recent performance: It ranked in the long-term bond category’s bottom quartile in each of the past three calendar years, then ranked in the bottom 2% of the peer group to start this one.
Interest-rate risk has been the fund’s Achilles’ heel. Its average effective duration is one of the longest in the category, making it more sensitive to changes in interest rates than its competitors. As sticky inflation sparked interest-rate hikes and delayed subsequent cuts, that posture has battered this fund for quite some time.
But there is plenty of hope for it. It weights bonds by their market value, translating the market’s read on each security into a portfolio weight. The US bond market attracts wide attention, making it hard to outsmart the market—and, as a result, this portfolio. Plus, the fund charges a razor-thin 0.04% fee. That lowers the hurdle the fund needs to clear in order to beat out its long-term bond peers.
The author or authors do not own shares in any securities mentioned in this article.
