Dividends Matter, Most Of The Time

by: Ron Rowland

The market is hitting new highs again, but the question of if the Financials sector is doing the same depends on whether or not you include dividends. While dividends matter for the top-ranked Financials sector, current dividend yield is not getting any respect, making Yield the bottom-ranked factor.

Sectors: Financials has topped the rankings of our Sector Benchmark ETFs for all but two of the past 15 weeks. The sector surged in the month after the election, then consolidated its gains for about two months, and then broke out to new nine-year highs this week. This was the hardest-hit sector during the financial crisis, and it has to climb another 9% before declaring an all-time high on a price basis. However, on a dividend-adjusted basis, it is already more than 13% above its 2007 peak, proving once again that dividends matter. Technology climbed to second place a week ago and is holding down that spot again today. Materials held the top spot for the two weeks that Financials relinquished its leadership role, and it resides in third place again this week. Consumer Discretionary and Health Care swapped positions, producing the only relative-strength changes in the sector rankings this week. Telecom and Energy both succeeded in shedding their negative momentum scores and now sit precariously on the plus side of the line.

Factors: After eight weeks of absolutely no change in the relative strength of the top three Factor Benchmark ETFs, there is actually a small change to report today. While High Beta continues to be the undisputed champion, Value moved ahead of Small Size to claim the #2 spot. There were also minor changes further down the rankings, with Fundamental and Momentum swapping places and Quality and Growth doing the same. Last week, there was a near five-way tie for second place, but this week there is much more dispersion visible in the rankings and a more linear falloff in the momentum scores. Yield gets no respect and remains the laggard, sitting on the bottom for a fifth week.

Global: Latin America extended its current visit to the top of the Global Benchmark ETF rankings to a fourth week. Not only is Latin America sitting on the top, it also made a significant addition to its momentum score, giving it a substantial 18-point margin over China. China climbed from fourth a week ago to become the new second-place occupant. It displaced Emerging Markets, which slipped to third, but now all three of our emerging market categories are at the top. If you recall, emerging markets were providing much of the global leadership in 2016 until the November election. Investors believed the incoming Trump Administration would be bad for emerging markets, which sold off hard in late 2016 while the U.S. market rallied higher. U.S. stocks are still in rally mode, but there has been a reversal in the sentiment toward emerging markets, propelling them back to the top. As strong as the U.S. has been, it has managed nothing better than sixth-place ranking the past five weeks. Although all global categories are firmly in the green, there was some shuffling of positions among the lower-ranked categories. The U.K. and Japan each climbed a little higher, while EAFE and the Eurozone slipped, leaving the Eurozone now on the bottom.

Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.