U.S. stocks have been in an uptrend since mid-November with small-cap ETFs pushing to all-time highs and the S&P 500 poised to do the same. However, the recent action in dividend ETFs suggests investors are on guard for weakness despite the recent rally.
For example, technical analyst Andrew Thrasher points out that the S&P 500 hasn’t been meaningfully outperforming SPDR S&P Dividend ETF (NYSEArca: SDY) during the move higher in U.S. equities.
SDY’s tracking index is designed to measure the performance of the highest dividend yielding S&P Composite 1500 Index constituents that have consistently increased dividends every year for at least 20 straight years.
“We can use this lower-beta ETF in relation to the larger S&P 500 SPDR (NYSEArca: SPY) to get a feel for investor sentiment based on which security is outperforming the other,” Thrasher wrote at his blog.
“When traders are looking to maintain equity allocations but want to take some risk off the table they will often look to the more defensive sectors and higher dividend paying stocks to accomplish this. These types of shifts often cause SDY to outperform SPY during periods of ‘risk off’ trading,” he added.