With the current turbulence in the market, we use ETFs to measure the relative performance of different asset classes. This is based on a aggregate momentum over one week, month, quarter, half year and year. Our observations of the current global asset trends are:
- Gold and international bonds and treasury bonds are at the top of the rankings.
- Precious metals and commodities are the only risk asset that are still above cash but ranked below the U.S. total bond index.
- All other risk assets (U.S. stocks, international stocks, emerging market and frontier stocks, REITs and high yield bonds) are now ranked lower than cash.
With this backdrop, dividends remain key. Strong dividends and sound companies are critical to riding out this current wave of fear and uncertainty.
Jonas Elmerraji reviews a select group of the stocks that have declared recent dividend increases.
His list is as follows:
- News Corp.(NWSA)
- SunTrust Banks(STI)
- Torchmark (TMK)
- Buckeye Partners(BPL)
- Scotts Miracle-Gro (SMG)
- Kinross Gold (KGC)
- Ritchie Bros. Auctioneers(RBA)
This is an interesting list of companies that we haven't reviewed before. This gives a variety of market segments: Entertainment, banking, insurance, oil, gold, household and agricultural. Intuitively, this is a set of segments that should ride out the current turbulence well.
Note that we are not recommending this selection, we are just measuring what Jonas is recommending, but it is an interesting group.
The purpose of this article is to swallow the premise but then measure the returns against a benchmark set of dividend ETFs which are more steady.
The benchmark ETFs are:
|Asset||Fund in this portfolio|
|High Yield Bond||HYG|
- August 2011 7 Stocks With Strong Dividends - Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate - Above funds using TAA (40% fixed income, 30% for each of the top two asset classes,
- Retirement Income ETFs Strategic Asset Allocation Moderate - Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum,
Portfolio Performance Comparison
|Portfolio/Fund Name||1-Year AR||1-Year Sharpe||3-Year AR||3-Year Sharpe||5-Year AR||5-Year Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||7%||81%||10%||88%||10%||71%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||7%||67%||4%||17%||3%||16%|
|August 2011 7 Stocks With Strong Dividends||-1%||-4%|
While I liked the theory of the diversification and strong dividend earnings, this portfolio has a poor and short history. The basic ETF portfolio has much better properties even though there is no commodity option. This highlights the benefits of broad diversification without any bias on any particular stock.
Three Month Chart:
I like the strong dividends theory, especially in this market. I like the diversification represented in the stocks, it's just that picking the right stock is difficult and few have been successful over the long term.
For now, I'm sticking with the diversified set of ETFs
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.