Rising Treasury yields are plaguing growth and technology stocks. Advisors looking to position for a second quarter rebound may want to embrace cyclical ETFs.
They can grab compensation for that endeavor with the WisdomTree Global Dividend Model Portfolio.
“This model portfolio seeks to provide capital appreciation and high current dividend income, through a globally diversified set of WisdomTree’s dividend income oriented equity ETFs. The model strives to deliver dividend income in excess of the global benchmark of equities,” according to WisdomTree.
There’s imminent allure with this model portfolio.
“Economically sensitive sectors and stocks have the most potential to surprise to the upside, easily beating dismal prior year earnings. This is reflected in the earnings momentum chart below, which gives energy, materials and financials an edge. Growth companies that excelled in 2020 will find it much harder to exceed prior-year levels,” according to BlackRock research.
Combine Cyclicals with Quality Dividends
Cyclicals are usually found in the energy, financial services, industrial, and materials sectors. The Global Dividend Model Portfolio helps advisors capitalize on the resurgent energy sector, rebounding financial services names, and the value proposition offered by materials stock.
“Many of the so-called stable sectors that did well in 2020 have poorer earnings momentum. Mega-cap technology stocks, long bastions of stability, also bore the brunt of the recent rates-related pain. Because these large tech stocks are long duration in their cash flow and growth prospects, they reap the greatest benefits from low rates and, in turn, have gotten hurt most as rates normalize upward,” adds BlackRock.
Dividends are in demand as fixed income investors face a lower-for-longer interest rate environment. The Federal Reserve is expected to maintain its near-zero interest rate policy to help push inflation up, bolster the economy, and lower the unemployment rate. The Fed has already stated it was willing to let inflation run higher to offset years inflation fell below its 2% target.
“We give cyclical stocks and reopening plays in general the advantage for the moment, while remaining watchful for signs of a cycle transition as the recovery moves forward potentially returning the upper hand to growers,” concludes BlackRock.
For more on how to implement model portfolios, visit our Model Portfolio 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.