$DOW 30 / Market Extra: ‘Dogs of the Dow’ are
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Posted On: 04/20/2017 12:08:11 PM
$DOW 30 / Market Extra: ‘Dogs of the Dow’ are the stock market’s version of best in show
http://stock.report/market-extra-dogs-of-the-...t-in-show/
http://ei.marketwatch.com//Multimedia/2016/10...137241c023
http://ei.marketwatch.com//Multimedia/2016/10...137241c023
“Historically this is a strategy that has worked, and it goes to the concept that if you buy stocks at a low valuation — whether you look at it in terms of dividend yield or [price-to-earnings ratios], that doesn’t make much of a difference — you generally outperform,” said Meyer.
The strategy isn’t designed to outperform every single year, however. There is always a risk that value stocks turn out to be a so-called value trap, never quite gaining much upward momentum.
Meyer, however, still likes the idea, arguing that the strategy outperforms over the long term.
Still, investors looking to capitalize on this strategy have few options. One of them is the Elements Dogs of the DOW Dow Jones High-Yield Select 10 Total Return exchange-traded note DOD, +0.64% which is designed to implement a “Dogs of the Dow” strategy but is comparatively expensive. Investors would be charged ¾ of a percent of assets under management for a simple strategy that comes with a low turnover. To compare, the expense ratio for the SPDR Dow Jones Industrial Average ETF Trust DIA, -0.31% which tracks the Dow itself, is 0.17%.
Another ETF implements a “Dogs of the S&P 500” strategy. The SPDR S&P 500 High Dividend ETF SPYD, -0.15% buys a portfolio of 80 of the S&P’s highest yielding stocks and allocates them on an equal-weight basis. The fund, which comes with a 0.12% expense ratio, is up 12% this year.
It helps that some of this year’s Dogs hail from the energy patch and those tied to the oil-and-gas sector, including Chevron Corp. CVX, +0.28% Caterpillar Inc CAT, -0.43% and Exxon Mobil Corp. XOM, +0.00% a group that benefited from a sharp rebound in energy prices. In addition, the strategy has outperformed amid increased demand for dividend-paying stocks, with investors using yield as a source of income in an environment of ultralow bond yields. The average yield for a Dog component is 3.5%, according to Bespoke. To compare, the yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -1.95% is 1.77%.
But just as bond yields are sensitive to rising inflation and higher interest rates, any sign of either would generally hit high-dividend stocks. The negative performance of the ETN in the third quarter, when it fell 1.6%, is a case in point. Despite that, the year-to-date return is nearly quadruple the S&P 500’s return.
Chris McKhann, managing editor at Simpler Trading, says wealthy investors would be much better off replicating the “Dogs of the Dow” strategy on their own, as trading costs would come in below the fee paid for the DOD ETN.
“With a flat trading cost at discount online brokerages, it would make sense to trade 10 stocks once a year,” said McKhann. “The larger the account, the more cost-efficient it would be.”
The biggest problem with the strategy is investors’ ability to stick with it, according to McKhann.
http://stock.report/market-extra-dogs-of-the-...t-in-show/
http://ei.marketwatch.com//Multimedia/2016/10...137241c023
http://ei.marketwatch.com//Multimedia/2016/10...137241c023
“Historically this is a strategy that has worked, and it goes to the concept that if you buy stocks at a low valuation — whether you look at it in terms of dividend yield or [price-to-earnings ratios], that doesn’t make much of a difference — you generally outperform,” said Meyer.
The strategy isn’t designed to outperform every single year, however. There is always a risk that value stocks turn out to be a so-called value trap, never quite gaining much upward momentum.
Meyer, however, still likes the idea, arguing that the strategy outperforms over the long term.
Still, investors looking to capitalize on this strategy have few options. One of them is the Elements Dogs of the DOW Dow Jones High-Yield Select 10 Total Return exchange-traded note DOD, +0.64% which is designed to implement a “Dogs of the Dow” strategy but is comparatively expensive. Investors would be charged ¾ of a percent of assets under management for a simple strategy that comes with a low turnover. To compare, the expense ratio for the SPDR Dow Jones Industrial Average ETF Trust DIA, -0.31% which tracks the Dow itself, is 0.17%.
Another ETF implements a “Dogs of the S&P 500” strategy. The SPDR S&P 500 High Dividend ETF SPYD, -0.15% buys a portfolio of 80 of the S&P’s highest yielding stocks and allocates them on an equal-weight basis. The fund, which comes with a 0.12% expense ratio, is up 12% this year.
It helps that some of this year’s Dogs hail from the energy patch and those tied to the oil-and-gas sector, including Chevron Corp. CVX, +0.28% Caterpillar Inc CAT, -0.43% and Exxon Mobil Corp. XOM, +0.00% a group that benefited from a sharp rebound in energy prices. In addition, the strategy has outperformed amid increased demand for dividend-paying stocks, with investors using yield as a source of income in an environment of ultralow bond yields. The average yield for a Dog component is 3.5%, according to Bespoke. To compare, the yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -1.95% is 1.77%.
But just as bond yields are sensitive to rising inflation and higher interest rates, any sign of either would generally hit high-dividend stocks. The negative performance of the ETN in the third quarter, when it fell 1.6%, is a case in point. Despite that, the year-to-date return is nearly quadruple the S&P 500’s return.
Chris McKhann, managing editor at Simpler Trading, says wealthy investors would be much better off replicating the “Dogs of the Dow” strategy on their own, as trading costs would come in below the fee paid for the DOD ETN.
“With a flat trading cost at discount online brokerages, it would make sense to trade 10 stocks once a year,” said McKhann. “The larger the account, the more cost-efficient it would be.”
The biggest problem with the strategy is investors’ ability to stick with it, according to McKhann.
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