US equities continued their rally in August, the S&P 500 gained another 7% after the +5.6% in July, this is the best monthly performance since April. The Dividend Aristocrats ended this month up 4% after 5.13% in July. The investors were more optimistic after the Fed stimulus and a shift in policy to average inflation targeting, implying lower rates for longer, and some strong earnings, especially from big techs.
Year-to-date the US Dividend Aristocrats are still down -1.12% underperforming the S&P 500, given the +9.74% 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 sector allocation of the S&P 500 index.
Performance Update
The Defensive Dividend Aristocrats gained another 2.82% after the 6.3% rally in August, and the total return is now 6.23% in 2020. The defensive version is outperforming the dividend aristocrats and a bit behind the S&P 500 total return index now.
Roper Technologies (ROP) and McCormick & Company (MKC) are the top (defensive) performers in 2020, while VF Corp (VFC) and Chubb (CB) are laggards.
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.