The Pacer US Cash Cows 100 ETF (COWZ) has proven its dominance over the past seven years, outperforming the Schwab US Dividend ETF (SCHD) in terms of total returns. While SCHD prides itself on a rigorous methodology with its Dow Jones Dividend 100 Index, COWZ’s Cash Cows Index has consistently displayed strong performance in both bullish and bearish markets. However, it is important to note that the Cash Cows Index’s volatility can be attributed to its impressive returns in 2009. Backtested data reveals that both COWZ and SCHD have surpassed the S&P 500 index, but COWZ has managed to exceed its underlying index’s returns by 0.66% per year, while SCHD has struggled, underperforming its underlying index by -0.53%. With these facts in mind, the author asserts that COWZ emerges as the superior ETF when considering total returns for their respective underlying indices.
Introduction
In the world of ETFs (Exchange-Traded Funds), there are numerous options available to investors looking to capitalize on specific segments of the market. Two popular choices in the dividend ETF space are the Pacer US Cash Cows 100 ETF (COWZ) and the Schwab US Dividend ETF (SCHD). These funds offer exposure to dividend-paying companies but differ in their underlying indices and performance characteristics. This article will compare the performance of COWZ and SCHD, providing readers with insights into their respective strengths and weaknesses.
Comparison of COWZ and SCHD
Before delving into the specifics of each fund, it is essential to understand the overall performance of COWZ and SCHD. Over the past seven years, COWZ has consistently outperformed SCHD, making it an attractive option for investors seeking robust returns. However, it is crucial to examine the underlying factors contributing to this outperformance.
COWZ’s Performance
Overview of COWZ
COWZ tracks the Pacer US Cash Cows Index, a proprietary index designed to identify high-quality, cash-rich companies. This unique approach focuses on companies that generate significant cash flows, offering investors exposure to businesses with strong financial foundations. By selecting companies with ample resources, COWZ aims to provide stable and consistent dividend payments.
The Cash Cows Index
The Cash Cows Index, upon which COWZ is based, has exhibited impressive performance characteristics. One notable feature of this index is its ability to perform well during both up and down markets. This resilience can be attributed to the high cash flow generation of the companies included in the index, which often enables them to weather economic downturns and maintain dividend payments.
Outperformance of COWZ
COWZ’s outperformance over SCHD can be partially attributed to the Cash Cows Index’s ability to identify companies with strong financial positions. By focusing on cash-rich businesses, COWZ has managed to deliver substantial returns to its investors. This outperformance demonstrates the potential benefits of investing in companies with robust cash flows.
Performance during up and down markets
Another strength of COWZ is its ability to perform well in both bullish and bearish market conditions. While some dividend ETFs may struggle during market downturns, COWZ has showcased resilience and delivered favorable returns to its investors. This attribute can make it an attractive option for risk-averse investors seeking stability during turbulent times.
Volatility of the Cash Cows Index
It is worth noting that the Cash Cows Index has experienced periods of volatility, most notably during the year 2009. This volatility can be attributed to the outsized return generated by the index during that year, which significantly impacted its overall performance. While this may introduce some short-term fluctuations, it does not diminish the overall strength and success of the Cash Cows strategy employed by COWZ.
SCHD’s Performance
Overview of SCHD
SCHD tracks the Dow Jones Dividend 100 Index, which employs a more rigorous methodology in selecting its constituent companies. This index focuses on high-quality, dividend-paying companies with a consistent track record of dividend growth. By selecting companies with a history of increasing dividends, SCHD aims to provide investors with a steady income stream and the potential for capital appreciation.
The Dow Jones Dividend 100 Index
The Dow Jones Dividend 100 Index, which underlies SCHD, is composed of companies that have demonstrated a strong commitment to dividend payments. By incorporating strict criteria for inclusion, this index aims to provide investors with exposure to companies that have consistently rewarded shareholders through dividend growth.
Methodology of SCHD
One significant difference between SCHD and COWZ lies in their respective methodologies. While both funds target dividend-paying companies, SCHD places a greater emphasis on dividend growth and historical performance. This more rigorous selection process helps to ensure that the companies included in the index are committed to consistent dividend payouts and have a track record of delivering value to shareholders.
Comparison with COWZ
Despite SCHD’s stringent methodology, it has underperformed COWZ over the past seven years. This underperformance may be attributed to the differences in the underlying indices and investment strategies employed by each fund. While SCHD focuses on dividend growth, COWZ’s emphasis on cash-rich companies has proven to be a more successful approach in generating robust returns.
Backtested Data
Outperformance of both COWZ and SCHD
When comparing both COWZ and SCHD to the S&P 500 index, backtested data reveals that both funds have outperformed the broader market. This impressive track record highlights the potential for dividend-focused ETFs to deliver attractive returns to investors. However, it is important to note that COWZ has exceeded the return of its underlying index by 0.66% per year, while SCHD has underperformed its underlying index by -0.53%.
Comparison with the S&P 500 index
The S&P 500 index is often used as a benchmark for overall market performance, making it an important point of reference when evaluating the performance of COWZ and SCHD. Both funds have managed to outperform this benchmark, demonstrating their ability to deliver superior returns. However, the difference in their respective underlying indices and investment strategies plays a significant role in their relative performance outcomes.
Comparison of Returns
Exceeding returns of COWZ
COWZ’s outperformance over SCHD can be primarily attributed to the different underlying indices and investment strategies employed by the two funds. By focusing on cash-rich companies, COWZ has managed to generate substantial excess returns, exceeding its underlying index’s return by 0.66% per year. This outperformance showcases the potential benefits of investing in companies with strong cash flows and solid financial positions.
Underperformance of SCHD
While SCHD has delivered attractive returns to investors, it has underperformed its underlying index by -0.53% per year. This may be attributed to the more rigorous selection process employed by the Dow Jones Dividend 100 Index, which focuses on companies with a consistent track record of dividend growth. While this approach can provide stability and income, it may result in slightly lower total returns compared to funds like COWZ, which prioritize cash-rich companies.
Difference in underlying indices
The difference in performance between COWZ and SCHD can also be attributed to the disparities in their underlying indices. COWZ’s Cash Cows Index focuses on companies with significant cash flows, while SCHD’s Dow Jones Dividend 100 Index prioritizes companies with a history of dividend growth. These divergent strategies result in varying returns and risk profiles, with COWZ offering higher total returns and SCHD providing stability through consistent dividend growth.
Conclusion
In conclusion, the Pacer US Cash Cows 100 ETF (COWZ) has consistently outperformed the Schwab US Dividend ETF (SCHD) over the past seven years. COWZ’s focus on cash-rich companies has proven to be a successful strategy, delivering robust returns and stability even during market downturns. On the other hand, SCHD’s more rigorous methodology, centered around dividend growth, provides stability and income but has resulted in slight underperformance compared to COWZ.
Based on the facts about total returns for the underlying indices, the author believes that COWZ is a better ETF option than SCHD for investors seeking attractive returns. However, it is essential for individuals to consider their own investment objectives and risk tolerance before making any investment decisions. Factors such as income needs, diversification goals, and personal preferences should be taken into account when deciding between COWZ and SCHD or any other dividend-focused ETF.
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