Last week, the ALPS Sector Dividend Dogs ETF (SDOG), a deep value portfolio of high yielding large-cap stocks, outperformed the S&P 500 by over 175 basis points as the cyclical value rotation accelerated with commodity prices surging on the Russia-Ukraine conflict.
However, this strong performance is not unexpected or unprecedented, as SDOG has historically performed well during commodity booms.
Inflationary pressures have pushed commodities to levels not seen in years, and these trends have been exacerbated by Russia’s invasion of Ukraine. WTI crude oil spiked to over $115/ barrel last week, and commodities, such as wheat and steel that are major exports from Russia, rose to levels not seen in years.
SDOG has historically outperformed the S&P 500 index during commodity booms as the fund’s cyclical overweight positioning within energy, materials, financials, and industrials benefit from elevated inflation.
SDOG industrial names, Lockheed Martin Corp. (LMT, 2.55% weight), rocketed 12.61% last week, along with Huntington Ingalls Industries (HII, 2.24% weight), up 9.1% as $350 million in U.S military aid was approved for Ukraine. Lockheed’s Javelin anti-tank missiles and Huntington’s military ships will receive those funds. SDOG materials name, Newmont Corp (NEM, 2.54% weight), a gold producer, also ripped 9.4% higher last week as gold rallied on inflationary fears as a result of the conflict, according to ALPS.
Despite weak equity markets last week, Hewlett Packard Enterprise (HPE, 2.07% weight), an SDOG tech name, rallied 2.5% after the company reported strong earnings and full-year guidance on a strengthening order book. The computer hardware & storage company helped rebuke fears of a slowing global economy due to rising commodity prices and supply constraints, according to ALPS.
“The market’s YTD decline has been driven entirely by contracting multiples. At 19.0x, the S&P 500’s P/E is down from 21.4x at the start of the year and 22.5x at the start of 2021. By contrast, forward earnings estimates have increased 3.0% YTD,” Jonathan Golub, Credit Suisse equity strategist, said on March 2.
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