VSDA: Expensive For What It Does

The main competitive problem is not that the ETF is bad, but that its edge is easily arbitraged away. A dividend-growth screen inside a defensive sector mix is a crowded factor stack, so the likely beneficiaries are the lower-fee incumbents with similar exposures and better liquidity, while the product itself risks becoming a slow bleed asset-gathering vehicle rather than a durable alpha engine. Over multi-year horizons, fee compounding matters more than most dividend investors admit: a 30-35 bps annual cost gap can overwhelm several years of incremental payout growth if the underlying basket does not outperform on total return.

Second-order, the defensive tilt can be self-defeating in a regime where rate cuts, easing financial conditions, or an earnings-led broadening rally lift cyclicals and quality growth more than staples/utilities. In that setup, the fund’s portfolio construction likely underparticipates just when investors are willing to pay for beta, so relative performance can lag both on upside capture and on flow momentum. Lower liquidity is not just a trading nuisance; it also raises the probability of wider discounts/premiums and makes it harder for allocators to use the fund tactically, which can suppress inflows and keep spreads wider than peers.

The contrarian view is that the market may be over-indexing on headline expense ratio and underestimating the value of disciplined dividend growth in a choppy, lower-return world. If equity volatility rises or breadth deteriorates, a portfolio that compounds cash distributions while avoiding the most expensive parts of the market can look better than static fee comparisons suggest. The key catalyst to watch is whether macro conditions reward defensives for another 6-12 months; absent that, the product likely remains a relative-loser versus cheaper, more liquid substitutes.