US equities struggled in September but managed to end the third quarter with gains. The S&P 500 gained another 9% in the last quarter, after losing 3.8% in September. The Dividend Aristocrats ended this month down -1.39% and are up 7.8% for the last three months. The investors were more optimistic after the Fed stimulus in the first part of this quarter and struggled with COVID-19 and related unemployment rates uncertainty again last month.
The upcoming U.S. presidential election will probably keep the investor uncertain till at least the first week of November. We will not time the market or anticipate on the outcome of the election, the best scenario is to stick to your investment plan and objectives of our portfolios.
Year-to-date the US Dividend Aristocrats are still down -2.6% underperforming the S&P 500, given the +5.57% for this benchmark. One of the reasons is the allocation of Tech/IT, which is only 1.4% in the US Dividend Aristocrats index. Which is nothing compared to the +28% IT in the S&P 500 index.
The Defensive Dividend Aristocrats are down -1.47% in September, and the total return is now +4.67% in 2020. The Defensive Dividend Aristocrats are outperforming the US dividend aristocrats and just behind the S&P 500 index. The table below lists the monthly performance.
The defensive approach
The Defensive Dividend Aristocrats’ objective is to outperform the Dividend Aristocrats over any five-year rolling time horizon, especially in bear markets. The maximum draw-down (mdd) should be lower.
The idea of the Defensive Dividend Aristocrats is to invest in 10 Dividend Aristocrats that are selected based on price-return and risk-ratios at year-end. Combined with the dividend growth characteristics of all Aristocrats, this should result in a comfortable set of companies for a long-term dividend portfolio.
The Defensive Aristocrats are selected on performance-based criteria:
- Geometric Annual performance of the last 10 years (GeoAP10)
- Win-ratio, the chance of a positive monthly performance (over 7000 calculations)
- Loss-ratio, the chance of a monthly loss multiplied by the weighted average loss
Aspects such as dividend yield or dividend growth are not taken into consideration in this approach.
Read more on: Defensive Aristocrats methodology
Members can use the screener to find the current best dividend aristocrats based on loss-ratio.