The Dogs of the Dow strategy is a simple, hands-off investment approach that says to buy the 10 highest yielding stocks in the Dow 30 at the start of each year.  With the calendar turning over from 2019 to 2020, below is a look at how the Dogs strategy performed in 2019.  As shown, the 10 Dogs posted a total return of 19.38% in 2019, which was below the 25% return for the Dow and well below the 28% that the 20 non-Dogs returned.  The biggest winner in the Dogs in 2019 was JP Morgan (JPM) with a gain of 47.27%, but Pfizer’s (PFE) decline of 6.92% really hurt overall performance.

The 20 non-Dogs were led by Apple (AAPL), Microsoft (MSFT), Visa (V), and United Tech (UTX), while Walgreens Boots (WBA) and 3M (MMM) were the two non-Dogs that fell in 2019.  Start a two-week free trial to Bespoke Institutional to access our Trend Analyzer tool and track key trends in individual stocks and major ETFs.

Moving on to 2020, below is a list of this year’s Dogs of the Dow.  Eight of the ten Dogs from 2019 remain on the list, while 3M (MMM) and Walgreens Boots (WBA) — the two non-Dogs that fell in 2019 — have replaced JP Morgan (JPM) and Procter & Gamble (PG) — the two biggest gainers of the Dogs in 2019.  Dow Inc. (DOW) is the highest yielding Dog at 5.12%, followed by Exxon (XOM), IBM, and Verizon (VZ), which all have dividend yields above 4%.

Below are the final total return performance numbers for key ETFs across asset classes in 2019.  For each ETF, we also include its performance in Q4 and December.

The S&P 500 rallied 2.9% in December and 8.99% in Q4 to finish the full year up 31.22%.  The Tech-heavy Nasdaq 100 (QQQ) was by far the best performing US index ETF in 2019 with a gain of 38.96%, and it was the third best ETF in the entire matrix.  The title of best performing ETF in 2019 goes to the S&P 500 Technology sector ETF (XLK), which rallied 49.86%.  Remember, 40% of XLK is made up of just Apple (AAPL) and Microsoft (MSFT), which gained 89% and 58% in 2019, respectively.  The Russia stock market ETF (RSX) was the second biggest winner in the matrix with a 2019 total return of 40.79%.

Everywhere you look across the equity landscape, there were big winners in 2019, but the weakest area of the market was the Energy sector ETF (XLE).  Even still, XLE managed to put up double-digit percentage gains on the year at +11.74%.

In the commodities space, we saw oil gain 32.61% in 2019, which actually bested the gain for the S&P 500.  Gold (GLD) and silver (SLV) both put in solid gains in the mid-teens, while the perpetually losing natural gas ETF (UNG) was the only ticker in the matrix that fell across all three time frames (December, Q4, and full year).

Looking at fixed income, the aggregate bond market ETFs (AGG and BND) posted total returns of 8%+, while the 20+ Year Treasury ETF (TLT) gained 14% on the year.  Q4 and December were tough for fixed income, however, as rates moved higher.  Join Bespoke Premium with a two-week free trial for our 2020 outlook and more.

One of the primary drivers of the boom in ETFs over the last decade is that they provide efficient diversification to the market and various sectors/groups.  While that’s the theory, the reality is that a number of the biggest sector ETF’s aren’t all that diversified at all.  The chart below shows the weight of the top two holdings in each of the 11 S&P 500 sector ETFs.  Would you believe that the two largest holdings in two ETFs account for more than 40% of the entire ETF, while in the ETFs for another two sectors the largest two components account for more than a third of the entire ETF?  That’s right, in the Energy sector, the top two holdings (Exxon and Chevron) account for just under 43% of the entire ETF, while Alphabet (GOOGL) and Facebook (FB) account for 41.8% of the new Communications Services sector ETF (XLC).  In the Tech sector, Apple (AAPL) and Microsoft (MSFT) account for just under 40% of the XLK ETF.

The table below lists each of the eleven sector ETFs along with their top two holdings.  As noted, in the case of companies with dual-listed share classes in the ETF, we include both share classes as one.  In the case of three sectors (Communication Services, Consumer Discretionary, and Energy), the top holding accounts for over 20% of the entire ETF.  Normally, when you think about diversification, you would picture spreading out your bets across a variety of different companies so that you aren’t too exposed to any one name.  However, when one out of every five dollars invested goes to one stock, we aren’t sure how diversified that really is.  Now, the purpose of highlighting these top-heavy ETFs is in no way meant to imply that these ETFs are faulty in their construction.  In fact, these ETFs do a very good job of tracking the sectors they are intended to track.  Instead, it is an illustration of just how top-heavy the major indices have become.  Investing in “the market” or a specific sector is increasingly becoming a concentrated bet on a number of large names.  Start a two-week free trial to Bespoke Institutional to access our Trend Analyzer tool and track key trends in individual stocks and major ETFs.

Intel (INTC) surged in the first quarter of 2019, but after lowering guidance in its April earnings report, the stock fell 9% the following day with further declines from there.  Within a month of its earnings report, the stock had fully erased its YTD gains. INTC bottomed in late May and has been in an uptrend ever since.  Along the way, the stock saw an 8.1% pop in response to an earnings triple play and took out resistance around $52.5 in the process. That was not the only notable resistance that has been taken out though. After filling the gap from its April decline, INTC was stuck below its spring highs throughout the fall, but in the past week it has broken out once again. While the stock is pulling back today, and could potentially retest this former resistance level, the current set up for INTC looks attractive.

Valuations for the tech sector have broadly become elevated, especially for INTC’s biggest competitor Advanced Mirco Devices (AMD) which trades at around 200 times earnings, but INTC is one of the more reasonably valued amongst its peers.  INTC has the eighth-lowest trailing price-earnings ratio, 13.98, of the 70 stocks in the S&P 500 Technology sector and its price-sales and price-book ratios are likewise well below the sector average.  Additionally, while not the highest yielder in the sector, INTC’s dividend yield is also on the higher side at 2.1% compared to just 1.29% for the sector and 1.82% for the S&P 500. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.