The ALPS Sector Dividend Dogs ETF (SDOG) is higher by 16.91% year-to-date, an advantage of 71 basis points over the S&P 500.
Some of SDOG’s out-performance is attributable to its status as a value fund, and that’s been a useful trait to sport in 2021. After a more than decade-long run of futility against growth stocks, value equities started perking up about a year ago. While the move higher hasn’t been in a straight line, strength in value stocks is encouraging to some market observes, and some believe that the recent strength exhibited by value names could be the start of something more substantive.
“Even after the partial rebound, value stocks remain priced at very attractive valuations across most regional markets—discounts are not only in the cheapest decile in history, they are in the bottom half of the cheapest decile! In the US market, the discount is wider than the discount observed during the height of the tech bubble and is approximately halfway between its peak last year and the extreme discount reached during the tech bubble,” according to Research Affiliates.
In other words, value stocks are still inexpensive, and that could fan the flames of more upside for SDOG going forward. That thesis could be supported by rising Treasury yields. Reminding investors that it’s often positively correlated to rising 10-year yields, SDOG is higher by 2.11% over the past week while the S&P 500 Growth Index is off 2.49%.
Something else to remember is that, historically speaking, runs of value strength typically last a while, indicating that the current instance could still be in its early innings. That could bode well for SDOG’s status as a tool for long-term investors.
“When most liquid asset classes are set to deliver a negative or near-zero real return, value stocks stand out as the only asset class likely to generate a 5%–10% real return over the coming decade. The opportunity to buy value stocks may be short-lived and we may wait decades for an opportunity of a similar scale,” adds Research Affiliates.
As the research firm notes, the drawdown in value stocks that ended in August 2020 started in December 2006, meaning that it lasted nearly 14 years. That doesn’t mean that the rebound will last that long, but it could be a sign that stocks are due for a lengthy period of impressive performances.
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).
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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.