By the standards of the past decade-plus, value stocks are performing well in 2021, but barring a major reversal this month, it appears as though value will trail growth again this year.
With an eye toward 2022, investors shouldn’t rush to eschew value stocks. In fact, value could be solid again next year, and that could put a spotlight on exchange traded funds such as the ALPS Sector Dividend Dogs ETF (SDOG).
The 2022 setup for value stocks is compelling. As things stand today, value stocks are inexpensive, and inflation could be a tailwind for this factor.
“But as we head toward 2022, those investors might want to expand their focus. Right now, a host of economic factors are making cheap, overlooked “value” stocks look ripe for a takeoff. And the ever-stronger possibility of higher inflation over the next couple of years will only add more fuel to the comeback,” reports Shawn Tully for Fortune.
SDOG, which tracks the S-Network Sector Dividend Dogs Index, has strong value tendencies because it equally weights sectors, excluding real estate. While this means that the fund is underweight on financial services — a quintessential value destination — relative to the S&P 500, it’s also underweight on growth havens such as technology.
Additionally, if the cycle earnestly turns in favor, it’s worth noting that those turns can be vicious against growth and lead to lengthy periods of value out-performance.
“But growing numbers of investors think we may be about to witness the revenge of the dogs. Part of that analysis comes down to a belief that markets are due for a so-called reversion to the mean,” according to Fortune.
Then there’s inflation. Obviously, it’s proven more persistent than hoped — so much so that “transitory” is out of the lexicon — and that could give rise to upside for energy and materials stocks, which SDOG overweights, in 2022. Plus, interest rate hikes are likely to benefit financial services names. Those three sectors combine for nearly a third of SDOG’s roster. In other words, SDOG could prove positively correlated to rising rates and higher inflation.
“The rising interest rates that accompany higher inflation also reduce growth stocks’ appeal: As safer bonds begin offering higher yields, they start looking more attractive than higher-priced, volatile equities that often don’t pay dividends,” notes Fortune.
Other high-dividend ETFs include the SPDR S&P Dividend ETF (SDY), the iShares Select Dividend ETF (NYSEArca: DVY), and the iShares Core High Dividend ETF (HDV).
For more news, information, and strategy, visit the ETF Building Blocks Channel.
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.
