Stock Analysis & Valuation DGA Core Plus Absolute Return ETF (HF)

• Previous Close: $21.41
• Sector Valuation Confidence Level: High

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	n/a	n/a
Intrinsic value (DCF)		n/a
Graham-Dodd Method	23.24	9
Graham Formula	47.82	123

Strategic Investment Analysis

Company Overview

The DGA Core Plus Absolute Return ETF (NYSE Arca: HF) is an actively managed exchange-traded fund (ETF) operating in the Financial Services sector. With a market capitalization of approximately $786 million as of FY 2018, HF seeks to generate absolute returns through a diversified portfolio of fixed-income securities, including corporate bonds, government debt, and other credit instruments. The fund employs a core-plus strategy, allowing flexibility to invest in higher-yielding or risk-adjusted opportunities beyond traditional benchmarks. HF's investment approach is designed to provide income and capital appreciation while managing interest rate and credit risks. The ETF's performance is closely tied to macroeconomic conditions, interest rate movements, and credit market dynamics. With a beta of 1.37, HF exhibits higher volatility than the broader market, appealing to investors seeking active fixed-income exposure with potential for enhanced returns.

Investment Summary

HF presents an attractive option for investors seeking actively managed fixed-income exposure with a focus on absolute returns. The fund's core-plus strategy offers flexibility to capitalize on market inefficiencies, supported by a solid revenue base of $662 million and net income of $116 million in FY 2018. However, its higher beta (1.37) indicates elevated market sensitivity, which may deter risk-averse investors. The ETF's dividend yield, supported by a $2.279 per share payout, enhances its appeal for income-focused portfolios. Key risks include interest rate fluctuations, credit risk, and the fund's reliance on active management, which may underperform in certain market conditions. Investors should weigh HF's potential for outperformance against its inherent volatility and sector-specific risks.

Competitive Analysis

HF competes in the crowded fixed-income ETF space, where its core-plus absolute return strategy differentiates it from passive index-tracking funds. Its active management allows for tactical adjustments, potentially offering downside protection and alpha generation in volatile markets. However, the fund's higher expense ratio compared to passive peers may erode returns over time. HF's $786 million AUM positions it as a mid-sized player, lacking the scale advantages of giants like iShares or Vanguard. The fund's performance is heavily dependent on the skill of its portfolio managers, introducing key-person risk. In a rising rate environment, HF's flexibility to adjust duration and credit exposure could be a competitive edge, but its success hinges on accurate macroeconomic forecasting. The ETF's niche appeal lies in its hybrid approach—combining core fixed-income stability with opportunistic credit plays—but it must consistently demonstrate value-add to justify fees and retain investor capital.

Major Competitors

• iShares Core U.S. Aggregate Bond ETF (AGG): AGG is the dominant passive aggregate bond ETF with massive scale and ultra-low fees. It offers broad market exposure but lacks HF's active management and absolute return focus. AGG's lower volatility may appeal to conservative investors, while HF targets those seeking outperformance.
• Vanguard Total Bond Market ETF (BND): BND is another low-cost index tracker competing on price rather than performance. Its sheer size provides liquidity advantages over HF, but it cannot tactically adjust to market conditions like an active fund. BND suits buy-and-hold investors, while HF caters to those wanting active risk management.
• PIMCO Income Fund (PIMIX): PIMIX is a formidable active competitor with a similar core-plus approach but as a mutual fund rather than ETF. Its institutional share class has outperformed many peers, though HF's ETF structure offers tax efficiency and intraday trading that PIMIX cannot match.
• iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD): LQD focuses solely on investment-grade corporates, lacking HF's flexibility to move across credit qualities. While LQD benefits from iShares' distribution network, HF can potentially generate higher returns by venturing into wider opportunity sets during market dislocations.