Market Pulse: The Great Rotation continues
May 1, 2013
On Monday The Wall Street Journal ran an article titled, "In Stocks, Payouts Trump Potential." The author's point is investors are buying stocks with attractive dividends over ones with good growth prospects. Of course readers of this column have known this for months.
I compared the performance of the Schwab Dividend Equity ETF (SCHD) to 33 sector funds from the iShares family. Over the last three months, the broad-based Schwab Dividend Equity ETF outperformed all but five!
Plus, four of the five sector funds that outperformed were high dividend payers (Utilities, Healthcare, Consumer Goods, and Pharmaceuticals). Biotechnology was the only traditional growth sector that was better.
This is part of the TINA principal — when it come to receiving income from investments, There Is No Alternative to holding dividend paying stocks.
Yes, there are some preferrred stocks that remain attractive, mostly adjustable-rate issues, but receiving good income from the preferred market is difficult.
Nearly all of the bank trust preferreds that served us well for many years have been called. No trust preferreds have been issued, nor will any appear. Dodd-Frank is to blame.
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For now and the foreseeable future, macro factors will not be determining stock prices. A need for income will continue to drive them higher. That explains why healthcare, pharmaceuticals and utility stocks have been leading.
One can't help but be encouraged by the market's strength in the face of negative news on a few fronts. Never mind "Sell in May…"
It is still a bull market, one as we've seen not easily derailed as long as interest rates are low. And better-yielding stocks will continue to be the best bets.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.