Amid fears regarding a slowdown in economic growth, trade tensions, and higher interest rates, investors chose to look into value companies that focus on dividend distribution for rebalancing the risk of their portfolios.
FAANGs have been hammered in October, staging their worst month since the 2008 recession, but have lately managed a comeback. Large-cap value equities have been favored by investors seeking refuge from the market’s plunge. Asian stocks regained some of the lost ground over the past week on hopes trade tensions will ease. Closing the list, global real estate investments seem a good option as the U.S. housing market is showing signs of exhaustion.
Check out our previous Trends edition at Trending: Chinese Stocks at Four-Year Lows Amid Fears of Deepening Trade Spat.
Investors Take Shelter in Dividend-Paying Stocks
Dividend yield has been increasingly on investors’ minds over the last month as equities dived into correction territory and growth investing is not so appealing anymore. Interest in companies paying out a steady dividend climbed by 49% over the last week as investors pondered rebalancing their portfolios toward lowering the risk of depreciation.
Growth stocks have been favored for the better part of 2018, with the exception of the February meltdown. However, an increasing mass of investors feels that the tide may be shifting and turbulences could come more frequently than before since world markets are in the late period of the economic cycle. High valuations coupled with rising trade tensions and higher interest rates in the U.S. have all contributed to greater investor anxiety. This led to greater selling pressures which spooked passive investors away from growth stocks. One strategy that has been shown to work is investing in high dividend-yielding stocks when they have been sold off. This way an investor can beat the average index because these stocks are not suffering as much during a market decline but continue to pay out dividends, boosting the total return of investment.
Delivering a handsome recurring rate of investment return, ETFs like InfraCap MLP ETF (AMZA ) is focused on U.S. energy companies. With a monthly distribution of $0.11, AMZA is one of the highest yielding ETFs in its class. On an annual basis, it pays $1.32 per share, which translates into 19.90% dividend yield.
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FAANGs Try to Climb Back Following Horrible October
Earnings for the big growth corporations in the FAANG acronym have disappointed markets but, as always, attracted more viewers to the sector, upping traffic by 34% over the last five days.
The technology sector started the month of October on its back foot, the Nasdaq Index shed 9.5% in the first nine trading days as elevated valuations, fears of continued trade frictions with China and peaking revenues reigned in on investor sentiment. Then Netflix (NFLX) came out with crushing earnings but did not convince markets it was time to get back in. Amazon (AMZN) plunged 10% on a revenue and guidance miss, while Google’s parent company, Alphabet (GOOG), reported a solid 22% increase in revenue but was still below Wall Street expectations. Apple (AAPL) followed with a beat on both revenues and earnings per share. However, the 20% revenue increase to $62.9 billion and the 41% climb in quarterly earnings per diluted share did not impress investors who preferred to focus on light guidance, a miss in iPhone sales as well as the major changes to the company’s reporting structure.
However, once November rolled in, sentiment started to flip and by the time Facebook (FB) reported its earnings investors were ready to embrace a decent set of numbers without treating the stock too harshly. The social media giant beat expectations for net income for the quarter by 9%, reporting $5.14 billion or $1.76 a share. Sales were up 35% compared to the same period of 2017 but slightly missed expectations with $13.73 billion versus $13.77 billion.
With a heavy tilt toward FAANG stocks, the iShares Russell 1000 Growth ETF (IWF A+) suffered in October but found the strength to climb back over the last week. The last seven trading days brought inflows of $21 million for the ETF, after a flat October, and an appreciation of 8% in value. The ETF is still up 9.5% for the year.
Large-Cap Value Stocks Provide Safety Net
Investors jumped into large-cap value equities over the past month. Pouring $660 million into the iShares S&P 500 Value ETF (IVE A), a diversified ETF that invests in industry leaders like Berkshire Hathaway (BRK.B) JPMorgan Chase (JPM) and ExxonMobil (XOM), investors chose safety in the face of rising volatility. Traffic in the sector rose by 26% for the week as investors looked into diversification methods that would also provide steady revenue.
The iShares S&P 500 Value ETF (IVE A) last paid a quarterly dividend of $0.68 per share, which amounts to an annualized $2.65 and a yield of 2.4%. It holds exposure to great value corporations that have weathered far worse storms than the correction in October, and its components are scattered between many industries with no particular inclination.
The ETF is a little underwater for the year, down 0.37%, but has performed rather well over the last seven trading days, posting a 5.7% jump. Rotating out of growth stocks and into value may provide a cushion at a time when economic activity starts to falter and growth companies are lowering their guidance.
Asian Equities Hope for a More Peaceful Climate
Investors exposed to Asian equities took note of the U.S. midterm elections as hopes for a shift in trade policies toward a more conducive environment emerged. Viewership in the sector rose by 15%, which signals interest in investing in depressed stocks across the Asian spectrum.
Sure enough, markets were correct and the results of the U.S. midterms point to a harsher political environment for U.S. President Trump, a fact that would make it more difficult for him to go forward with his aggressive trade policy. Another supportive ingredient for Asian and Chinese stocks, in particular, is the Chinese securities regulator’s decision to urge mutual funds to provide liquidity support to cash-strapped listed firms. The measure is intended to be limited to financial aid and has already spread to eleven Chinese brokerage firms, which have committed $3.70 billion to an asset management scheme that aims to raise as much as $15 billion.
The iShares Edge MSCI Min Vol Emerging Markets (EEMV A+) is focused on Chinese stocks with a tilt toward financials and technology. The ETF gained 5.7% in the last seven days but still suffers from a tormented stock market that caused it to dive 6% for the year.
For a deeper analysis on individual ETF investments such as (EEMV A+) or (IWF A+), use our ETF Analyzer Tool. You can select ETFs by Category or Type as well as add individual ticker symbols to compare performance, expenses and dividend yield, among other metrics.
Global Real Estate
Global real estate is yet another territory investors are looking into for safety and steady returns. The sector witnessed a 14% rise in traffic as the U.S. housing market seems weakened by rising interest rates and sliding construction pace.
SPDR DJ Wilshire International Real Estate ETF (RWX A-) is focused on Asian and European real estate large-cap and mid-cap companies. Firms like Unibail-Rodamco-Westfield, the ETF’s top holding, are specialized in owning, developing and managing premier retail assets across multiple countries. It has a 6.72% dividend yield, greater than the 5% average for the SPDR DJ Wilshire International Real Estate ETF.
The ETF has lost 7% in 2018 but could be an option for a mix of dividend income and low risk of depreciation in a long-term portfolio strategy.
The Bottom Line
The dividend yield has become more and more important for investors over the last year as the market seesawed with every trade spat and spike in interest rates. Large-cap value equities and global real estate are two viable options for protection and recurring income from distributions. Despite a grim October, FAANGs staged a relief rally as investors are focusing on the positives in the earnings reports. Finally, Asian equities were on the rise as an already oversold market and a favorable outcome for the U.S. midterms boosted sentiment.
By analyzing how you, our valued readers, search our property each week, we hope to uncover important trends that will help you understand how the market is behaving so you can fine-tune your investment strategy. At the end of the week, we’ll share these trends, giving you better insight into the relevant market events that will allow you to make more valuable decisions for your portfolio.
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