Evaluating CDC ETF: Is Its Volatility-Weighted, High-Dividend Strategy Still a Smart Beta Winner?

The VictoryShares US EQ Income Enhanced Volatility Wtd ETF (CDC) has long positioned itself as a smart beta contender, leveraging a volatility-weighted, high-dividend strategy to balance risk and return. As the market navigates a post-pandemic landscape marked by inflationary pressures and shifting investor priorities, the question arises: Does CDC's approach still deliver compelling risk-adjusted returns compared to its peers?

Risk-Adjusted Returns: A Mixed Picture

CDC's strategy-screening for high-dividend, low-volatility U.S. equities and rebalancing quarterly-aims to mitigate downside risk while capturing income. Data from 2020 to 2025 reveals a nuanced performance profile. The ETF's Sharpe ratio of 0.76 outperforms the Schwab US Dividend Equity ETF (SCHD)'s 0.44, suggesting stronger returns relative to total risk. Similarly, its Sortino ratio of 1.11, compared to SCHD's 0.72, indicates superior efficiency in managing downside risk. These metrics highlight CDC's ability to cushion losses during downturns, as evidenced by its -21.37% maximum drawdown versus SCHD's -33.37% during the March 2020 market correction.

However, the fund's long-term consistency is questionable. In 2023, CDC ranked last in the large-cap value ETF category, underscoring challenges in its market-timing strategy. While its volatility-weighted approach theoretically reduces exposure to volatile stocks, the fund's reliance on cash allocations during perceived market weakness has drawn criticism for "ineffective momentum strategies" and poor timing.

Benchmarking Against Competitors

To assess CDC's viability, it's critical to compare it with peers like SCHD, VTV (Vanguard Value ETF), and IWD (iShares Russell 1000 Value ETF). Over a 10-year period, SCHD has delivered a 12.35% annualized return, outpacing CDC's 10.58%. This gap reflects SCHD's broader exposure to high-quality dividend growers and its lower expense ratio (0.09% vs. CDC's 0.35%). Yet, CDC's drawdown resilience-particularly during sharp market declines-offers a counterpoint for risk-averse investors.

Other competitors, such as the Vanguard Dividend Appreciation ETF (VIG) and Fidelity High Dividend ETF (FDVV), emphasize dividend growth and sector diversification, often tilting toward technology and consumer staples. These funds have demonstrated robust performance in 2024, capitalizing on the S&P 500's rally. CDC, by contrast, has struggled to consistently outperform the S&P 500, a benchmark it aims to outdo through its volatility-weighted lens.

Strategic Trade-Offs and Investor Considerations

CDC's volatility-weighted methodology inherently prioritizes stability over growth, which may appeal to income-focused investors seeking downside protection. Its 0.35% expense ratio is competitive within its niche, though higher than low-cost alternatives like VTV (0.04%). The fund's quarterly rebalancing and cash allocations during market stress events aim to preserve capital, but this strategy's effectiveness hinges on accurate timing-a challenge highlighted by its 2023 underperformance.

For investors, the key trade-off lies in balancing risk mitigation with growth potential. While CDC's risk-adjusted metrics are attractive, its mixed track record in market-timing decisions and lower total returns compared to peers like SCHD warrant caution. The fund's appeal may be strongest in diversified portfolios where its defensive characteristics complement higher-risk assets.

Conclusion: A Smart Beta Contender with Caveats

CDC's volatility-weighted, high-dividend strategy remains a compelling option for investors prioritizing risk-adjusted returns. Its superior Sharpe and Sortino ratios, coupled with historically smaller drawdowns, underscore its value proposition in volatile markets. However, the fund's inconsistent performance-particularly its 2023 underperformance and reliance on market timing-raises questions about its long-term viability as a standalone smart beta solution.

For those seeking a blend of income and downside protection, CDC offers a unique angle. Yet, in a competitive landscape where alternatives like SCHD and VIG deliver stronger total returns, CDC's role may be best suited as a complementary holding rather than a core allocation. As always, investors should align their choices with their risk tolerance and long-term objectives, recognizing that no strategy is immune to market cycles.