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You’ve probably heard of the Dogs of the Dow. But have you ever traded the Market Sector Dogs?
The Dogs of the Dow is a popular investment strategy. You simply buy the 10 highest-yielding Dow Jones Industrial Average (DJIA) stocks at the start of each year.
Sometimes these stocks offer high yields because they have performed poorly over the course of the year. Other times, the high yield is a result of a dividend increase. Remember that the dividend yield is a combination of both the dividend amount and the stock price.
This strategy has beaten the DJIA each of the past four years, including this year.
Year-to-date in 2016, the Dogs of the Dow are up 14.9%. Meanwhile the Dow is up 9.9%.
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I’ve uncovered a similar simple strategy that can be used for stock market sectors. This can be done easily by using the nine broad sector S&P SPDR ETFs that have been around since 1998:
Consumer Discretionary Select SPDR (NYSE: XLY)
Consumer Staples Select SPDR (NYSE: XLP)
Energy Select SPDR (NYSE: XLE)
Financial Select SPDR (NYSE: XLF)
Health Care Select SPDR (NYSE: XLV)
Industrial Select SPDR (NYSE: XLI)
Materials Select SPDR (NYSE: XLB)
Technology Select SPDR (NYSE: XLK)
Utilities Select SPDR (NYSE: XLU)
Among these, I selected the four worst ETFs in terms of 2015 performance:
Energy (XLE) -21.5%
Materials (XLB) -8.6%
Utilities (XLU) -4.9%
Industrials (XLI) -4.3%
I then reviewed the performance last year’s losers in 2016 . . . all beating the S&P 500 Index YTD:
Energy (XLE) +17.4%
Materials (XLB) +15.3%
Utilities (XLU) +12.0%
Industrials (XLI) +19.7%
These ETFs are currently delivering average gains of 16.1%. That’s a full 1.2% better than the Dogs of the Dow.
This trend has also held true for other sector ETFs in 2016. For example, Brazil and Silver ETFs were among the worst losers in 2015, but have been big winners in 2016.
As you look forward to 2017, it may be worth considering this Market Sector Dogs strategy. So what broad sectors are 2016’s losers that may be big winners in 2017?
These are the four worst-performing SPDRs in 2016:
Health Care Select SPDR (NYSE: XLV) -1.8%
Consumer Staples Select SPDR (NYSE: XLP) +3.2%
Consumer Discretionary Select SPDR (NYSE: XLY) +7.6%
Utilities Select SPDR (NYSE: XLU) +12.0%
A simple portfolio allocation strategy would be to buy these four sector ETFs at the end of this year, with the goal of beating the market in 2017.
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