Will 'Dogs of the Dow' ETF Continue to Shine in 2014? - ETF News And Commentary
21 Enero 2014 - 6:45AM
Zacks
After years of sluggish performance, the ‘Dogs of the Dow’ are back
on track and outperformed the Dow Jones Industrial Average (DJIA)
benchmark in 2013 by 400 bps. This is apart from the fact that the
Dow generated the biggest annual gains in 18 years with 26.5%
return.
The Dogs generally represent the 10 highest yielding DJIA blue chip
companies that are near the bottom of their business cycle and thus
pay higher dividend yields (due to depressed stock prices) (read: 3
Best Dividend ETFs of 2013).
High dividend yields suggest that these stocks are in the oversold
territory and will rebound faster than any other stock when the
business cycle changes. This would result in higher capital
appreciation over the one-year period along with juicy yields.
For 2014, the Dogs of the Dow include AT&T (T), Verizon (VZ),
Merck (MRK), Intel (INTC), McDonald’s (MCD), Pfizer (PFE), Chevron
(CVX), Cisco (CSCO), General Electric (GE) and Microsoft
(MSFT).
Investors could easily play these Dogs with the only pure play
product in the space –
ELEMENTS DJ High Yield Select 10 ETN
(DOD). The ETN follows
the Dow Jones High Yield Select 10 Total Return Index, which uses
the Dogs of the Dow strategy by investing in the stocks with the
highest dividend yield in DJIA (read: 7 ETFs to Buy in 2014).
The note has amassed $22.9 million in its asset base while charges
75 bps in fees per year. Volume is light as it exchanges less than
19,000 shares in hand on average daily basis. This suggests
additional cost for this unpopular and illiquid fund in the form of
a wide bid/ask spread.
DOD was up 35% in 2013 but lost about 1% so far this year.
Bottom Line
Investors should note that the Dow Dogs may not necessarily offer a
nice portfolio every year as it underperformed in 2012. The
performance of these stocks and the ETN depend on bull or bear
markets and investors need to take great caution while investing in
these companies (see all the top ranked ETFs here).
However, given last year’s performance and some hopes for more
strength in large caps this year, this could be an interesting play
for 2014, and especially so for investors who like the idea of the
‘Dogs of the Dow’ theory in exchange-traded form.
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SPDR-DJ IND AVG (DIA): ETF Research Reports
ELEMT-DOGS DOW (DOD): ETF Research Reports
INTEL CORP (INTC): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis Report
MERCK & CO INC (MRK): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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