Seeking Alpha

Jeff Paul

 
View as an RSS Feed
View Jeff Paul's Comments BY TICKER:
Latest  |  Highest rated
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    Hi Richjoy,

    I based that comment on the research I presented previously that attempted to explain the "low-beta anomaly".

    http://seekingalpha.co...

    It mentioned that since fund manager performance is often based on the information ratio (active returns over benchmark / std dev of those active returns), it incentivizes managers to favor stocks with a beta closer to the benchmark (SPY, for example) that offer above average return potential. Also, for managers with bonus-structured compensation, there is more incentive to have high-beta stocks, which theoretically increase the chance of getting a higher return.

    To your point, this doesn't mean they don't buy lower beta stocks, but it would suggest that they favor those with betas closer to one. Obviously there are other factors involved (earnings projections, sector, etc), when it comes to institutional purchases. What might be interesting, if you have the time, would be to list the betas next to all of the holdings, and see if there are any correlations between beta level and institutional ownership level. DOV, AFL, CSX, EMR, and CVS have higher betas, and generally have higher ownership.
    Mar 31 06:04 PM | Likes Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    I would add one qualification…you don't need to pursue "the best total return", that could lead to higher risk. You need a reasonable target (maybe 7% annually) at a reasonable risk level and lower than average drawdown. That is, find an appropriate balance between reward and volatility that meets your goal and that you can live with comfortably! If your return exceeds that goal, then all the better!
    Mar 30 11:06 PM | Likes Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    Sure…this was a request from a reader last month. Essentially, it is measuring the largest percentage drop during the time period being examined. So for the 12-month, I look at each week's balance, and compare it to all of the weekly balances for the rest of that period, calculating the %difference, keeping the largest %decline. Then I search for the largest %decline = max drawdown. It's one way to assess risk. We would expect dividend portfolios to have smaller drawdowns than the SPY, and that has been the case so far.
    Mar 30 09:15 PM | Likes Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    I'm not surprised that your CEFs have done well the last 4-5 years. I would suggest going back another couple of years and see how much the CEFs fell in 2008/9 from their highs. Hopefully we don't go through that again in the next 5 years, but that will give you a sense of the potential risks. The fact that your funds are supplemental provides some leeway. They could wait until graduation, then use the money to pay off any loans (or cash out during school if the market is at highs, etc.) Good luck!
    Mar 30 09:11 PM | Likes Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    You're welcome, RiverCat. Glad you found the models useful!
    Mar 30 07:10 PM | Likes Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    Thanks, Eddie. How long have you been using a low-beta/HDGR style? Can you share your overall results, or is it close to returns for some of my DG models?
    Mar 30 07:09 PM | 1 Like Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    Hi George,

    I think there are several factors you need to consider. The easier answer is for the second question. Yes, I would look at low-beta, high DGR (and reasonable dividend, not necessarily "high", but depends on what that means). At the end of the day, total return is what will matter for you. (i.e. how much the account is worth by the time the grandchild starts college)

    For the first group of grandchildren, I don't know enough about CEFs to know if I would trust them to consistently raise the income stream each year. The ETF/CEFs (bond/preferred, etc) that my parents own have generally stayed flat or even lowered monthly payouts in the last two years. Mileage will vary. There are also questions to consider:

    With 5 years to go, there is potentially time to recover from a dip, considering we are at highs now and every few years something seems to happen, but are you willing to risk that? If the plan is to use the income stream and some of the principal each year of school, then the timeframe is really more like 10 years. If only the income stream is needed, then higher div yield may make some sense, otherwise, you probably want some DG mix, but get much more conservative the last couple years. Are these funds essential, or more supplemental? (goes to risk level based on purpose/importance) etc etc.

    All this said, if your goal is to increase income stream (not clear to me why that is necessarily the goal), then I would probably go with low-beta DG stocks with a decent portfolio yield. But I would likely shift an increasing portion to shorter-term investments (corp bond fund, CDs, etc) as they approach college age if the funds are considered essential to them paying for college. Don't want to lose 40% the year before school, much like what happened to many who planned to retire in 2008-2009.

    There's no single "right" answer to your question…you'll have to weigh all of these factors and decide on the course that makes sense for you. Every choice has its own set of consequences. Decide what is most important and what you can live with (or not live with), and go from there.
    Mar 30 03:31 PM | Likes Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    The research (based on data) shows that low-beta stocks do outperform higher beta stocks, but financial theory (MPT) would say that to get higher reward, you must take higher risk (as defined by volatility of returns), so from that standpoint it "is not supposed to happen". The low-beta research discussed incentive reasons that might explain why institutional managers avoid low-beta stocks, hence making them better values relative to the high-beta ones that get pursued.

    Here's a link to that article. http://seekingalpha.co...
    Mar 30 03:08 PM | Likes Like |Link to Comment
  • Dividend Growth Investing: A Strategy For Young Investors, Too [View article]
    Thanks for the link to that research article. I'll look over the whole thing in more detail. To your point on "volatility NOT reduced by dividends", that is not an accurate statement based on the table in Exhibit #7. The first data column shows the return and volatility for the "No Div" portfolio, which is clearly higher than all of the five dividend quintile portfolios, and with lower total return I might add (for value weighted portfolios) and the lowest return/risk ratios.

    Of the dividend quintile portfolios, you are correct that the highest yielding group did not have the lowest volatility. That actually doesn't surprise me, as many high yielders are companies in trouble, or with risky payout levels. The second to lowest yielding quintile had the lowest volatility (these are likely firms with lower, sustainable div rates). The second to highest quintile had the best reward/risk ratio though.
    Mar 30 01:49 PM | 2 Likes Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    Thanks, varan. I'm not into all the hype…show me the evidence, and let me experiment with it, and I'll reach my own conclusions. I *am* surprised at how well some of these models are performing during the recent bull trend. Theory says the SPY should do better, then again, there are a lot of factors going on. Relative to that index, my funds are rather concentrated (so far, apparently in a good way!). Investor and institutional behaviors may also be working in favor of low-beta and div stocks, not to mention our govt keeping bond rates so low. There is also some good luck, such as HNZ getting bought out, but that's part of the game! I would be happy if we were at 85% of the SPY's performance going up…I believe the bigger benefit will come on the downturns. I have almost 2 years of weekly returns, so maybe I can do some stats on that. The drawdown numbers are certainly positive for DG portfolios!
    Mar 30 01:32 PM | 1 Like Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    Yes, I agree. In theory, they should all fall less than the SPY when that time comes, based on their betas and more defensive nature (due to dividends). I haven't backtested my processes, though Bob Wells and others have done backtests that appeared favorable.

    You're a leading indicator of declines? Haha…sounds like when my mom buys something I recommend. (RNF recently tanked…) Obviously you haven't been buying the last 3 months then, huh? ;-) Wish you had, as I've been wanting to buy a few things for a long time now, but they keep going up!
    Mar 30 10:19 AM | 3 Likes Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    Thanks, Gratian!
    Mar 30 10:14 AM | 1 Like Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    You're welcome, Scooter-Pop! Interestingly, my initial model (DA+) was geared specifically toward "the Elderly" (i.e. people like my parents) who needed something simple. In the last two years, this work has expanded into 5 models that also benefit younger age groups, so something for everyone!
    Mar 30 10:14 AM | 2 Likes Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    You're welcome, Bob. Working on the update for the income-growth model this weekend. Looks like there will be some turnover, given the falling current yields for present holdings.
    Mar 30 10:12 AM | 1 Like Like |Link to Comment
  • Dividend Growth Models Update: Low Beta, High DGR Portfolio Off To A Great Start! [View article]
    Thanks, PendragonY! Between the different models, there are probably close to 100 different stocks to consider, depending on your goals. Makes for a great starting list!
    Mar 30 10:11 AM | 1 Like Like |Link to Comment
COMMENTS STATS
1,292 Comments
1,841 Likes