The value style has outperformed growth over the past few months, and investors who are positioning for a potential long-term shift should look to dividend growth exchange traded funds to capitalize on the trend.
For instance, the SPDR S&P Dividend ETF (NYSEArca: SDY) holds firms that have a minimum dividend increase streak of 20 years for inclusion. SDY has a 2.44% 12-month yield.
Year-to-date, SDY increased 11.1% while the SPDR S&P 500 Growth ETF (NYSEArca: SPYG), which focuses on more growth oriented stocks taken from the S&P 500, gained 2.0%. The outperformance reflects a reversal from 2015 when growth outperformed value by almost 11 percentage points. Value has underperformed growth for over eight years, the longest period since records were kept going back to 1926.
When looking into the value style, ETF investors may want to focus on the dividend growth strategy.
“We favor a different approach to seeking value by targeting a factor that is closely linked to the precepts of value investing: dividends,” State Street Global Advisors said in a note. “However, we prefer a dividend strategy that focuses on dividend growers rather than yielders.”
Specifically, SSgA argues that high dividend yields could reflect distressed companies and a falling stock price, so these high-yield stocks are producing attractive yields for a reason – high risk.
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