Monthly Archives: September 2016

Dogs of the Dow is themed ETF investing but flawed

Dog Breed Small Brabant AccountantInner Circle members often ask us about themed ETF investing strategies, and most of the time, we tell them we do not recommend investing in themes.

For example, some ETFs out there are based on the so-called “Dogs of the Dow” stocks. Essentially, the “Dogs of the Dow” ETF is based on a collection of the lowest-priced, highest dividend yielding stocks that trade on the Dow Jones Industrial Average and are updated yearly.

Rising interest rates will work against Dogs of the Dow ETF investing approach
The ALPS Sector Dividend Dogs ETF (symbol SDOG on New York; www., is an example of an ETF that applies the “Dogs of the Dow” theory on a sector-by-sector basis using the stocks in the S&P 500.

As we mentioned above, the Dogs of the Dow approach involves buying the lowest-priced, highest-yielding stocks in the Dow Jones Industrial Average. At the end of each year, you pick the 10 stocks from the 30-stock Dow with the highest dividend yields. You then invest an equal dollar amount in each, hold them for one year and repeat these steps annually.

The ALPS Sector Dividend Dogs ETF picks five stocks from each of the 10 sectors as defined by the S&P 500 index—consumer discretionary, consumer staples, energy, financials, healthcare, industrials, information technology, materials, telecommunication services and utilities. The ETF picks the stocks with the highest dividend yields. Each holding is then equally weighted so that every company has a similar influence on the ETF’s total return. The end result is a portfolio of 50 large-cap stocks.

The Dogs of the Dow strategy worked well in the 1990s because interest rates were going down. This tended to raise all stock prices. But high-yielding stocks were affected more than most, because they attracted former bond investors who were switching into stocks.
Interest rates are now likely to remain steady, or they could creep upward. So we see little appeal in a Dogs of the Dow approach.

For that matter, we see little appeal in following any formulaic approach to investing. The one basic rule about things like this is that if it sounds too good to be true, then it isn’t true.

The ALPS Sector Dividend Dogs ETF holds a number of stocks we recommend in Wall Street Stock Forecaster (including McDonald’s, Kraft Foods Group, Wells Fargo & Co., Baxter International, Pfizer, General Electric and Intel). It also holds a lot of stocks we don’t recommend. But, more to the point, we don’t recommend using a Dogs of the Dow approach to picking stocks or ETF investing.

There is no “philosopher’s stone”

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Affordable Housing: Is it worth it to “Drive until you Qualify”?

DCIM100MEDIADJI_0412.JPGBy Penelope Graham, Zoocasa

Special to the Financial Independence Hub

It’s an affordable housing conundrum for many downtown city dwellers: is it worth it to trade the convenience of urban living for suburban sprawl? As Toronto real estate prices continue their ascent, the only affordable way to own a detached house seems to be packing up and moving beyond city borders.

Hence the term “drive until you qualify”: the practice of moving far away to a region where real estate is still affordable. Doing so often means assuming a long daily commute to and from a bedroom community to an urban business hub – and the need to drive to the nearest corner store just to pick up some milk.

An Urban Exodus

But logging more time behind the wheel doesn’t seem to be deterring buyers in the GTA; according to recent numbers, they’re heading to the burbs in droves.

Sales are soaring in the municipalities surrounding Toronto – 3,586 houses sold in the 905 region in August, up 24% from the previous year, according to the Toronto Real Estate Board (TREB). Townhouses are also in high demand, with 1,154 units sold. By contrast, a scant 863 houses and 357 townhomes sold within Toronto proper.

Condos were the only housing type that remained stronger in the city than on the outskirts: 1964 compared to 822 in the 905.

But is moving out of the city always an affordable decision for those looking to upgrade their real estate, or accommodate their growing families? There are a number of areas to consider.

You Won’t Escape the Bidding War

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Millennials may need to save 22% of income just to retire by 70

chart-1As my Financial Post blog today recaps, a new study being released today by the San Francisco-based personal finance site NerdWallet warns that just to retire by age 70, today’s millennials would have to save a whopping 22% of yearly income. Click on the highlighted text for the FP piece: Millennials may have less time on their side, U.S. retirement study shows.

The adjacent chart shows the math and how much millennials would need to save every year, depending on whether the stock market generates its historic 7% annual rate or the more pessimistic projections of 5%.

“Era of supernormal returns is over”

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Fixed Income: What about inflation?


kevin-temp2By Kevin Flanagan, Senior Fixed Income Strategist, WisdomTree

Special to the Financial Independence Hub

The last few months have certainly given the money and bond markets a lot of divergent news headlines to digest. Not surprisingly, the focus has been on negative rates abroad, geopolitical events and, a bit more recently, some better-than-expected employment news juxtaposed with a softer-than-expected GDP report. That begs the question: What about inflation? Isn’t that a key ingredient in the bond market mix?

Without a doubt, U.S. inflation data has taken a backseat for fixed income investors, and for good reason; there just haven’t been any fresh developments lately. Certainly, the conversation has shifted from a year ago, when deflation concerns were permeating market psychology. But the latest figures don’t elicit concerns that price pressures will be rearing their ugly head anytime soon, or at least that’s what the collective thinking is in the fixed income markets.

Breakeven inflation ratesvrGP Breakeven-Inflation-Rate

So, what does the inflation backdrop look like? According to the widely followed Consumer Price Index (CPI), the year-over-year inflation rate came in at +1.0% in June (Note 1)—very little changed from the readings posted over the last four months, but definitely higher than the +0.1% for the same month in 2015. The core gauge, which excludes food and energy, rose at a +2.3% annual clip and has been residing in a range last seen in 2012. There continues to be a large dichotomy between core goods (-0.6%) and core services (+3.2%) .(Note 2)

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Staying fit can save you money on Life Insurance


By Syed Razad, LSM Insurance

Special to the Financial Independence Hub

The cost of life insurance increases as you get older. It is also more expensive for people with less than perfect health. Even if you are in perfect health today, you could become ill tomorrow or your fitness level could drop, especially if you live a sedentary life. People generally become less active when they get older. Insurance companies are now launching new incentives to help keep Canadians fit and healthy longer.

Manulife, one of Canada’s top insurance companies, is introducing an innovative new product called the Vitality Program. This product rewards policyholders for maintaining a high level of health and fitness and Goodlife Fitness is going to help with reduced membership fees.

“You make choices every day. With Manulife Vitality, you get rewarded for the healthy ones.”

This is the first time such a program has ever been offered. The Vitality Program combines the benefits of life insurance with two great features:

• The opportunity to save money on your life insurance premiums

• The opportunity to earn valuable rewards for improving your health

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