Confirming that cyclical sectors are gaining momentum and that high dividend strategies could be coming back into fashion thanks to rock-bottom interest rates, the ALPS Sector Dividend Dogs ETF (SDOG) is in a fourth-quarter groove, coming off of a 17% surge in November.
SDOG tries to reflect the performance of the S-Network Sector Dividend Dogs Index, which applies the “Dogs of the Dow Theory” on a sector-by-sector basis using the S&P 500 with a focus on high dividend exposure. SDOG’s equal-weight methodology is important because it reduces sector-level risk and dependence of some groups that are considered to be imperiled value ideas.
Last month was the best month of 2020 to this point for SDOG, with the exchange traded fund getting a lift from the resurgent energy sector, which SDOG overweights by virtue of its equal-weight sector methodology.
It’s certainly been a roller coaster ride of volatility for oil this year, but bullish signals could be feeding into trader activity for the new year. Traders are also optimistic for the future, betting on more gains for oil come 2021. Oil’s recent resurgence could serve to convert some market observers that were previously bearish on the energy patch. More importantly, higher prices can bolster the financial quality of oil and gas producers.
SDOG Helped By a Value Lean
Another catalyst for SDOG’s impressive November showing was the resurgence of the value factor.
Value fans believe this time may be different for value stocks, pointing to improving measures of investment sentiment, abating fears of a recession, rebounding corporate profits, and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years as the growth/value gap is as wide as it has been in decades.
With SDOG overweighting the energy, financial services ,and materials sectors, the ALPS ETF provides investors with an income-generating option for positioning for a more earnest value rebound.
Other high dividend ETFs include the SPDR S&P Dividend ETF (SDY), iShares Select Dividend ETF (NYSEArca: DVY), and the iShares Core High Dividend ETF (HDV).
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.