ETF Trends’ CEO Tom Lydon discusses the ALPS Sector Dividend Dogs ETF (SDOG) on this week’s ETF of the Week podcast with Chuck Jaffe on the MoneyLife Show.
SDOG is built on the general belief and approach that stocks that underperformed the previous year but were supported by a positive dividend yield would turn around and outperform the following year, Lydon explains. Utilizing this strategy would highlight many of the value companies and companies with solid yields.
The 12-month yield right now on SDOG is 3.62, which is highly attractive for fixed-income investors who are hurting in current market environments. There seems to be a shift somewhat from away growth as market volatility continues with many large growth stocks pulling back, such as disruptive technology, and more value-oriented stocks are on the rise.
“We may see a great opportunity for these types of stocks to revert to the mean and, as we are on a new year, and many people are looking to reposition and most importantly diversify, this is something to think about,” Lydon explains.
This fund takes the dogs of the DOW approach and applies it to the ALPS sector strategy. ALPS takes the five highest yielding stocks from each GICS sector (excluding real estate) and puts it into a composite index. This provides an opportunity for the fund to capture performance in sectors that previously have not done as well, such as industrials, financials, consumer staples, and healthcare that are positioned to perform strongly in a more hawkish Fed environment.
Feast or Famine?
SDOG is a fund that is either feast or famine, and Lydon classifies it as a trend play on value.
“We think that this new trend might have some legs to it, especially if you find your portfolio very highly correlated to the S&P 500. The S&P 500 is not the S&P 500. It was ten years ago; it’s completely changed where it’s very, very top-heavy in a handful of stocks, very tech-oriented, very growth-oriented,” Lydon says.
It’s a good fund if you believe that growth will continue to face difficulties in an environment of rising interest rates. Its place in a portfolio can come from small portions of equities and fixed income as it is an alternative play that many investors are seeking right now as they adjust their portfolio allocations to be leaner on the fixed income side.
“If you’re all in large-cap growth right now, it’s really a time to consider making sure you diversify into value. Here’s an opportunity to get that yield and also get some value,” Lydon explains.
Listen to the Full Podcast Episode Featuring Tom Lydon
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