Bonds have been an unusually poor hedge for the downturn in stocks this year. With the once reliable go-to hedge on the sidelines due to inflationary pressures and hawkish monetary policy, this week’s screen aims to answer the following question. “Where should I put my money if we get another leg down in the market?”
To help answer this question, we screened for relative performance to the S&P 500 for several return “factors” from the beginning of this year to the market bottom in June.
Factors are specific attributes associated with stocks that can influence their returns. In this case, we use factor ETFs as a proxy for factor returns. As shown below, the “high dividend yield” factor outperformed the S&P 500 and the other factors during this year’s sell-off.
We chose the top five holdings from our proxy ETF, VYM, as our five stocks this week. As the top holdings in the factor ETF, they should benefit from passive-investing inflows into the ETF. All five are well-known large-cap stocks, and three are trading comfortably in value territory. On average, they carry a higher dividend yield than VYM.
Unlike some of our other screens, we like the five stocks as a package. We understand that two stocks (JPM and PG) were down in the first half of the year. While they may decline further if the market takes another leg lower, the diversification and industry risk mitigation, they offer to make this package of five stocks likely to outperform the broader markets in a down market.
Company Summaries (all descriptions courtesy SimpleVisor)
JP Morgan (JPM)
Johnson & Johnson (JNJ)
Proctor and Gamble (PG)
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.