Why Actively Managed Dividend ETFs Outperform: The Case of CGDV

The debate between active and passive management in dividend-focused ETFs has long centered on cost efficiency versus performance. While passive strategies offer low fees and broad market exposure, actively managed funds like the Capital Group Dividend Value ETF (CGDV) have demonstrated superior risk-adjusted returns and resilience in volatile markets. This article examines how CGDV's unique strategy-combining dividend income, growth potential, and strategic flexibility-enables it to outperform both passive peers and the S&P 500.

A Strategy Built for Resilience and Growth

CGDV's active management approach diverges from traditional passive dividend ETFs by prioritizing "attractively valued" companies with strong balance sheets, sustainable competitive advantages, and potential for dividend growth according to Morningstar. Unlike passive funds that track indices like the S&P 500 or the Russell 1000 Value Index, CGDV allows managers to allocate up to 10% of assets to non-U.S. companies and non-dividend-paying stocks with strong growth prospects according to Morningstar. This flexibility enables the fund to diversify across sectors-such as technology, industrials, and healthcare-while maintaining a concentrated portfolio of about 50 holdings according to Morningstar.

The fund's hybrid growth-value strategy is particularly notable. For instance, CGDV holds both established dividend champions like Microsoft and NVIDIA alongside younger, high-growth firms that may not yet pay dividends according to Investing.com. This blend allows it to capture growth momentum during bull markets while retaining defensive characteristics in downturns. As stated by Capital Group, the fund's managers seek "quality at a reasonable price," a philosophy that has historically contributed to outperformance according to Morningstar.

Performance: Returns, Risk, and Resilience

CGDV's performance metrics underscore its advantages. Year-to-date (YTD) through November 2025, the fund delivered a 21.69% return, outpacing the S&P 500 ETF (SPY)'s 14.05% gain according to PortfolioLab. Its Sharpe ratio of 1.20 versus SPY's 0.70 highlights superior risk-adjusted returns, while its maximum drawdown of -21.81% compares favorably to SPY's -55.19% during the same period according to PortfolioLab. These metrics reflect CGDV's ability to mitigate downside risk, a trait reinforced by its 81 downside capture ratio-meaning it lost only 81% of the S&P 500's losses during bear markets according to Seeking Alpha.

The fund's resilience was evident during the April 2025 tariff-driven sell-off, when CGDV fell 9.2% compared to the S&P 500's 15% drop according to Investing.com. Over the broader period from February 2022 to December 2025, CGDV achieved a total return of +87.72%, with a compound annual growth rate of 18.14%-a stark contrast to the -2.89% return of many benchmarks during the 2022 inflationary period according to Total Real Returns. Such performance suggests that CGDV's active management can navigate both inflationary pressures and market volatility more effectively than passive alternatives.

Navigating Market Cycles and Strategic Adjustments

CGDV's active management team dynamically adjusts the portfolio in response to macroeconomic shifts. For example, during inflationary periods, the fund's focus on cash-flow-generating, high-quality companies has shielded it from the worst of stagflationary risks. In the past quarter, managers increased exposure to innovation-driven sectors like information technology (25.7% of assets) and healthcare (13.3%), while maintaining a 29% turnover rate to balance stability with opportunistic adjustments according to Investing.com. This adaptability has contributed to a Sharpe ratio of 0.98 since inception according to Investing.com, further validating its risk-adjusted appeal.

However, CGDV's strategy is not without trade-offs. Its 0.33% expense ratio exceeds SPY's 0.09% and is higher than passive dividend ETFs like iShares Core High Dividend ETF (HDV) and SPDR Portfolio S&P High Dividend ETF (SPYD), which offer lower costs and higher yields according to NASDAQ. For investors prioritizing yield and cost efficiency, these alternatives may be more attractive. Yet, CGDV's modestly higher dividend yield (1.31% vs. SPY's 1.09%) and capital appreciation potential according to PortfolioLab suggest that its active management can justify the premium for those seeking balanced income and growth.

Conclusion: Active Management's Edge in a Dividend-Driven World

While passive dividend ETFs remain popular for their simplicity and low costs, CGDV's active strategy demonstrates that superior performance is achievable through disciplined stock selection, strategic flexibility, and macroeconomic adaptability. By blending growth and value, the fund has outperformed the S&P 500 and its passive peers in both bull and bear markets, offering investors a compelling case for active management. For those willing to pay a modest premium, CGDV exemplifies how active strategies can deliver not just income, but also resilience and long-term capital appreciation.