What You May Have Missed This Week...
The 60/30/10 portfolio, the best value ETFs and the dividend ETF that's up more than 30% this year.
In addition to the regular posts here on Substack, I also publish ETF research and notes over on my blog, ETF Focus.
In case you wanted to catch up on the latest research above and beyond what you’re reading here, this is a quick list of some of the most recent articles from the blog!
With Treasury Bill Yields At 5%, Should The 60/40 Portfolio Now Be The 60/30/10 Portfolio?
It wasn’t that long ago that the 60/40 portfolio was declared dead. After a decades-long bull market in bonds that helped make the 60/40 portfolio one of the best investment strategies in the world, conditions changed when the Fed dropped the Fed Funds Rate to 0% during the financial crisis. That’s essentially the starting point for when investors began considering the “40” in the 60/40 portfolio to be dead money.
In reality, that wasn’t necessarily the case.
Maximizing Returns: Why This ETF's Size & Value Factor Strategy Has Been A Long-Term Winner
Factor investing has become a focal point for those looking to beat the market. Aside from leveraging and stock-picking—which come with their own sets of risks and limitations—factor investing offers a research-backed approach to outperforming the average market returns. This brings us to the Fama-French 5 Factor Model, which is a seminal framework in the world of finance. Developed by Eugene Fama and Kenneth French, this model suggests that five key factors—market risk, size, value, profitability, and investment—can explain a portfolio's returns over time. In simpler terms, it tells us that stocks with certain characteristics, like being small or undervalued, are more likely to offer higher returns.
Best Value ETFs: Now May Be The Time To Start Playing Value
2023 has been a surprisingly stellar year for growth stocks, corresponding to surging attention from investors on artificial intelligence (AI). Coming into the year, heightened uncertainty on monetary policy, political strife and stubborn inflation dominated headlines. Despite this, the year has shaped up to be a reasonably strong year for most equity investors, especially those overweight growth stocks.
On the other side of the coin are value stocks, which are stable, mature companies that are able to consistently generate profits and cash flows. Value stocks are not necessarily the cool kid in class, but possess greater stability and more consistent cash flow generation.
COWZ: Its Free Cash Flow Strategy Continues To Work For Investors
The summer of 2023 saw a flurry of activity from various ETF managers, each launching their own flavor of factor ETFs that focused on a specific financial metric: free cash flow. For instance, Global X ETFs rolled out the Global X U.S. Cash Flow Kings 100 ETF (FLOW) on July 12. Similarly on August 24, First Trust Advisors announced the launch of their First Trust S&P 500 Diversified Free Cash Flow ETF (FCFY).
While these launches may make it seem like a fresh trend, they are actually stepping into a niche that was effectively carved out by an older, established strategy. Enter the Pacer Cash Cows 100 ETF (COWZ), a factor ETF that has been offering investors a unique approach to value investing since its inception in December 2016.
This Dividend ETF That's Up 30% This Year Probably Isn't The One You Think
After a big 2022 that saw dividend stocks outperform the broader averages by double digits, it's been a complete flip in 2023. Tech, high beta and growth have taken over again leaving dividend ETFs with scraps in terms of returns. The Vanguard S&P 500 ETF (VOO) is up more than 17% this year, but the WisdomTree U.S. Total Dividend ETF (DTD), my benchmark for dividend stocks, is up only 4%. Some of the most popular dividend ETFs, including the Schwab U.S. Dividend Equity ETF (SCHD), are actually negative on the year.
Not all of them though. Surprisingly, the ones that are doing the best aren't even invested in the United States. They're invested overseas.
MJ: The Long Awaited Breakout For Marijuana Stocks Is Here!
Marijuana stocks, as measured by the ETFMG Alternative Harvest ETF (MJ), are up 35% over the past two weeks on a couple of potentially positive catalysts, one new and one old. The good news is that if these catalysts play out, this could only be the early innings of a bigger rally.
This Share Buyback ETF Can Complement a Dividend Investing Strategy
Dividends have long been a cornerstone of a solid investment strategy, providing investors with a reliable way to participate in long-term equity returns. They are often viewed as a sign of a company's stability and a testament to its profitability. The mechanics are straightforward: Companies distribute a portion of their earnings back to shareholders, usually on a quarterly basis. For investors, they offer the dual benefit of immediate income and the potential for reinvestment, thereby harnessing the power of compounding over time. The significance of dividends in the long-term investing game cannot be understated.
The Best (and Worst) Dividend ETFs of 2023 in My Opinion
Dividend investing offers an intriguing balance of income and growth potential, but wading through the plethora of dividend ETF options can be nothing short of overwhelming.
Adding to the confusion, the names of these ETFs often obfuscate more than they illuminate, promising high-yield or quality dividends without delving into the nitty-gritty of how these outcomes are achieved.
Personally, I don't believe in taking an ETF's name—or its glossy marketing materials—at face value. For me, truly understanding an ETF's potential means diving deep into its methodology.
Best Global Dividend ETFs
Most investors focus on the big U.S. dividend ETFs, such as the Schwab U.S. Dividend Equity ETF (SCHD), for their portfolios, but international dividend payers shouldn't be ignored. Yes, they're lagging the U.S. markets again in 2023, but U.S. market leadership is in roughly year 15 of its cycle. International stocks are long overdue for a period of extended leadership and it makes sense to have at least some exposure to them in your portfolio. ETFs targeting global dividend leaders often add a modest allocation overseas while still maintaining a domestic focus. These can be great options for expanding your dividend universe.