GCOW: Excellent Value And Dividend Growth, But Average Return

This series of articles aims to evaluate ETFs in terms of past performance and portfolio metrics. When necessary, reviews with updated data will be posted.

GCOW Strategy and Portfolio

Pacer Global Cash Cows Dividend Index ETF (BATS GCOW) began operations on February 22, 2016. It tracks the Pacer Global Cash Cows Dividend Index. It has 101 holdings and a distribution yield of 4.76 percent over a period of 12 months. The total expense ratio is 0.60 percent. Quarterly distributions are made.

PACER etfs state that the constituents of the fund must be from the FTSE All-World Developed Large Cap Index. This excludes REITs, Financials and companies with projected negative free cash flow or earnings in the next two years. Dividend yield is used to rank the 300 companies that have the highest free-cash flow yield. The 100 companies with highest dividend yields are then included in the index. The weighting of the constituents is based on the total dividends paid out in 12 months. A maximum weighting of 2% can be applied to any one company. The index is reconstituted in June and December twice a year.

The fund invests mainly in large companies (93 % of the asset value). The U.S. (16.2%), the U.K. (14.4%), Germany, and Japan (each about 13%) are the two countries with the highest weighting. The other countries are below 9%. The following chart shows the top 10 countries with an aggregate weighting of 86%.

Energy is the largest sector (24,9%), followed by industrials, materials and communications (each 13% to 15%). The portfolio is well diversified, but utilities and technology are underweighted.

The 10 largest holdings represent 20,4% of the total asset value. The top company weighs only 2.14% of the total, which means that risks associated with individual companies are minimal.

Click to enlarge

The Vanguard FTSE Developed Markets Index ( VEA) is represented in the following table as an example of a very cheap index.

Click to enlarge

Source: Fidelity

Past performance

Since its inception, GCOW outperformed VEA. The difference in annualized returns is less than 1%.

The S&P 500 has a total return in the same time period of 158.65%.

The chart below compares GCOW’s performance since its inception to 3 international dividend ETFs that are not hedged.

• Vanguard International Dividend ETF ( ViGI), is reviewed here.
• is reviewed here.
• Vanguard International High Yield Dividend ETF ( VYMI)

These funds do not include the U.S. This is a disadvantage compared to GCOW.

DNL is the best performer. GCOW is behind in 2023.

Since its inception, the share price has increased by 26.8% (next graph). CPI-based inflation was 27.7% over the same period. The fund has therefore almost preserved the inflation adjusted capital of the shareholders, excluding dividends.

Between 2017 and 2022, the total annual distributions have increased from $0.88 per share to $1.39. This represents a total growth in dividends of 58%. This is far above inflation. It is a close second to the ProShares S&P500 Dividend Aristocrats ( NOBL) which has a 57% dividend growth rate for the same time period.

Takeaway

The Pacer Global Cash Calves Dividend ETF invests in 100 large- and midcap dividend stocks that have superior free cash flows on developed markets. The fund’s largest sector is energy, but it is also well-diversified in terms of countries, sectors, and holdings. The valuation ratios and dividend growth rate of the fund are attractive. GCOW has beaten its parent index since 2016 in terms of total return, and is ahead of Vanguard International Dividend Growth ETF ( VIGI). It has lagged behind WisdomTree Global Ex-U.S. Quality Dividend Growth Fund( DNL).

Editor’s note: This article discusses securities that are not traded on major U.S. stock exchanges. Be aware of the risks involved with these stocks.