Since May, indexes focused on higher-yielding stocks have underperformed the broad market, largely as a result of the steady increase in interest rates.
In a previous blog post, I looked at the overall performance impact the rising interest rates had on different dividend indexes.
Below, I will take a closer look at the performance attribution and underlying exposures that caused the performance divergences.
Federal Reserve (Fed) Taper Talk Caused Interest Rates to Rise
Starting in May this year, longer-term interest rates in the U.S. rose considerably on just a hint the Fed could begin tapering its bond purchases later in the year. Between May 1 and August 20, 2013, the 10-Year Treasury yield increased 118 basis points to 2.81%.1
A Detailed Look at Attribution
In the chart below, I take a detailed look at the sector composition and underlying performance of a few indexes that I recently highlighted here. The indexes below include the best-performing of the analyzed indexes (WT SmallCap Earnings), the one with the lowest return (Morningstar Dividend Yield Focus) and one from the middle ground (WT U.S. Dividend Growth) focused on dividend growth that held up better than the high-dividend-yield indexes.