After multiple years of outpacing the overall market, this year the Dogs of the Dow strategy has underperformed, with four of the five stocks in the group trading in negative territory for the year. As of August 14, the Dow Jones has appreciated by 10.5% on the year, while the ten stocks in this year’s Dogs of the Dow have gained, on average, just 7.6% including dividends.
For our readers that are unfamiliar with the Dogs of the Dow strategy, the idea is pretty simple. At the start of the year, investors would buy an equal dollar weighted amount of each of the ten stocks in the Dow Jones with the highest yields. The idea is that the yields have risen too high because the underlying security is in undervalued territory.
Regardless of whether the overall market trends higher or lower, the idea is that the ten securities with the highest yields should either gain more, or lose less, than the overall market as traders come in and by into low values in search of the high yields.
We have monitored the strategy for the last three years, and in each year the strategy has worked, but 2017 appears to be the year that the stocks are unable to keep pace with the overall market.
While six out of the 10 stocks in the group are in positive territory, they simply have been unable to make up for the large losses that have been taken in the remainder of the stocks in the group.
Let’s look at the ten stocks in the group, starting with the four stocks trading in the red, and then taking a closer look at the stocks that are in positive territory.