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More Signs of Value’s Vindication

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There is no denying that through the first three quarters of this year, the growth and momentum factors dominated value, extending a theme that was seen for essentially all of 2017.

For the 12 months ended Sept. 30, 2018, the S&P 500 Momentum and S&P 500 Growth Indexes returned 30.37% and 25.21%, respectively, while the S&P 500 Value Index added just 10.06% over that period, according to S&P Dow Jones Indices.1

Of course it takes more than a couple of weeks of market action to undo long-standing trends, but the value factor is showing some temerity in the first two weeks of October. Of the five best-performing S&P indexes to start the month, through Oct. 11, 2018 two are value benchmarks while another two are high dividend indexes. Conversely, the S&P 500 Momentum and Growth Indexes are the second- and third-worst performers, respectively.

Source: S&P Dow Jones Indices, as of Oct. 11, 2018

“Will defensive factors assume market leadership while Momentum and Growth have a well-deserved respite?” said S&P Dow Jones. “Ten days do not a trend make, but what we see so far in October represents such a potential regime shift.”

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Defense And Dividends 

As the chart above indicates, some high dividend benchmarks are performing admirably in the first half of October. High dividends and the value factor are often joined at the hip and there is something to that relationship. The S&P 500 Value Index has a trailing 12-month dividend yield of 2.30%, which is not particularly “high,” but it is still well above the 1.73% trailing 12-month yield found on the S&P 500.

Value strategies also offer some leverage to growing dividends, again of prominent theme among S&P 500 companies this year.“During the first nine months of 2018, there were 291 dividend increases by S&P 500 constituents, including 75 which occurred in the third quarter,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth. “Increases this year were widely spread across the now 11 GICS sectors, a reminder that dividend ETFs can serve as great vehicle for tapping into the equity income from large-caps.”2

Of course, the intersection of high dividends and value can mean exposure to defensive sectors. Some defensive sectors are lagging on a year-to-date basis, but to start October, there are inklings these groups are firming.

Source: S&P Dow Jones Indices, as of Oct. 11, 2018

“This is not coincidental,” according to S&P Dow Jones Indices. “Consumer Discretionary and Info Tech have a strong tilt to Momentum, while Utilities and Consumer Staples are tilted towards defensive factors such as Low Volatility and Value.”3

Combining Value And Dividends

 The ALPS Sector Dividend Dogs ETF (SDOG) is an income-generating fund with a value profile. SDOG follows the S-Network Sector Dividend Dogs Index and equally weights 10 GICS sectors at 10% apiece and individual holdings at 2% apiece.

“Though this ETF does not track an S&P index, the S&P 500 is the starting point,” said Rosenbluth. “The ETF holds the five highest yielding stocks in each of the GICS sectors and is reconstituted based on data as of the end of November. Health care (11%), energy (11%) and utilities (11%) were among the nine sectors that had between 10%-11% of recent assets.”

1 Source: S&P Dow Jones Indices Oct. 11, 2018  http://www.indexologyblog.com/2018/10/11/momentum-bubble-deflating/

2 Source: CFRA Research Oct. 15, 2018 https://newpublic.cfraresearch.com/

3 S&P Dow Jones Indices Oct. 15, 2018 http://www.indexologyblog.com/2018/10/15/looking-through-the-sector-lens/

Important Disclosures & Definitions

An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus which contain this and other information call 866.675.2639 or visit www.alpsfunds.com. Read the prospectus carefully before investing.

Standardized performance for the ALPS Sector Dividend Dogs ETF (SDOG) can be found here. Current holdings for SDOG can be found here.

ALPS Sector Dividend Dogs ETF Shares are not individually redeemable. Investors buy and sell shares of the ALPS Sector Dividend Dogs ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.

There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the prospectus.

An investor cannot invest directly in an index.

The S-Network Sector Dividend Dogs Index is designed to serve as a fair, impartial and transparent measure of the performance of US large cap equities with above average dividend yields.

The S&P 500 Momentum Index is designed to measure the performance of securities in the S&P 500 universe that exhibit persistence in their relative performance.

The S&P 500 Value Index is a market capitalization weighted index. All the stocks in the underlying parent index are allocated into value or growth. Stocks that do not have pure value or pure growth characteristics have their market caps distributed between the value & growth indices.

The S&P 500 Growth Index is market capitalization weighted index. Growth stocks are measured using three factors: sales growth, the ratio of earnings change to price, and momentum. Constituents are drawn from the S&P 500 Index.

Dividend Yield – 12 Month Yield is the sum of a fund’s total trailing 12-month interest and dividend payments divided by the last month’s ending share price (NAV) plus any capital gains distributed over the same period.

ALPS Advisors, Inc. (AAI) has engaged IRIS Werks, LLC (IRIS) to produce analysis and commentary on ALPS-advised ETFs. IRIS currently has a compensated business relationship with AAI. AAI nor APSD are affiliated with IRIS.

The content and opinions expressed in this article are that of the author and not the views and opinions of AAI. In addition, AAI assumes no responsibility to ensure the accuracy of the content written by the author.

The author is not an investment professional and this article should not be considered investment advice. While the information and statistical data contained herein are based on sources believed to be reliable, the author takes no responsibility to ensure the accuracy of the content. Additionally, this article should not be relied on or be the basis for an investment decision. Information that is historical is not indicative of future results, and subject to change. 

ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Sector Dividend Dogs ETF.

DOG000810 12.31.2018

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