Why did Nasdaq Victory US 100 Large High Div Vol Wt L/C collapse?
The underperformance of VictoryShares US EQ Income Enhanced Volatility Wtd ETF, CDC,? will become a case study not only because there were material $1 B assets under management but also because of the design of the underlying Index.
Ofcourse one can wait for recovery, but when something clearly diverges from the rest (85 other dividend ETFs), especially if the divergence is negative, the product should not be designed as an ETF for retail public at large.
You can analyze the situation in many ways and if you go to seeking alpha you can also convince yourself to buy it and believe in “lower the price, more attractive it is” etc. However, the reality is that the dramatic underperformance illustrates how Indexes should not be designed. This was an Index, which volatility weighted, tactically timed, sought dividend and then something went wrong.
Even our beloved Vanguard VIG (Dividend factor ETF) with $77 B is also trailing.
I asked Alphie the following questions.
This was his summary answer
Factors in investing can fail due to various reasons, and this concept extends to specific factors like dividend and volatility. Factors may underperform due to changing market cycles, economic conditions, overcrowding, and shifts in market dynamics. The failure is also attributed to the complex nature of these factors, making them hard to predict and manage effectively.
When these factors are combined with market timing and cash management strategies, the complexity and risk can increase, potentially leading to suboptimal investment outcomes. Timing the market inaccurately, along with the unpredictable nature of factors like dividend yields and volatility, can create a challenging environment for investors, often resulting in a recipe for disaster. This complexity is part of what is sometimes referred to as the "factor zoo," where the abundance and interaction of various factors can lead to confusion and poor investment decisions.
This is where you can read my detailed chat with Alphie.
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