If you gotta shoot, aim high.
I don't wanna hit the groundhog. At the beginning of every year a lot of fuss is always made over the "Dogs of the Dow" strategy. While some market know–it–alls discount the Dogs strategy as a complete myth, there is no discounting the fact that this strategy is widely followed.
The Dogs is one of the simplest investment strategies around. At the start of the year, investors purchase an equal-weighted basket of the 10 highest yielding Dow Jones Industrial Average (DJIA) stocks. The basket is rebalanced at the beginning of each year with the new set of high yielders. In 2011, the Dogs outperformed the DJIA by a wide margin. After adjusting for dividends, the strategy delivered returned 17.2%, compared with a 1.7% loss for the non–Dog stocks and a 4.6% increase for all DJIA components.
According to some market watchers, a successful Dogs strategy requires investors to take advantage of the January effect. How did the Dogs do this past January? So far the 2012 Dogs have underperformed the DJIA, up 1.37% and 3.4% respectively for the month. To the upside: DuPont (DD) up 11.2%, Intel (INTC) rose 8.9%, General Electric (GE) up 4.5%, Kraft Foods (KFT) up 2.5%, Merck & Company (MRK) up 1.5% and Johnson & Johnson (JNJ) up 0.5%. Trading lower during the month: Verizon Communications (VZ) off 6.1%, Procter & Gamble (PG) down 5.5%, AT&T (T) down 2.7% and Pfizer (PFE) off 1.1%.
Historically, the Dogs have outperformed the boarder DJIA by more than 1.5% in the month of January alone.
Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.
For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx.