National ‘Dog’ ETFs Beat MSCI Gauge Since 1997: Chart of the DayDavid Wilson
Stock investors would be better off focusing on the world’s worst-performing markets each year than spreading their money around globally, according to the results of a new study.
The CHART OF THE DAY illustrates this by comparing the performance of a “Dogs of the World” strategy with the MSCI All-Country World Index, tracking shares of companies based in developed and emerging markets, since 1997. The dogs were the five biggest laggards among countries in the index.
Exchange-traded country funds were used to calculate the figures depicted in the chart. The numbers came from a June 13 paper by David M. Smith, an associate professor at the State University of New York at Albany, and Vladimir Pantilei, a student at the school.
The strategy surpassed the All-Country World “to a degree that compensates for its higher return volatility,” their paper said. One example of the latter was recorded in 2011, when the dogs fell 19 percent as MSCI’s index lost 7.6 percent.
Smith and Pantilei assumed each country ETF was bought at the beginning of a year and held for five years. The period was set to capitalize on mean reversion, or a tendency for returns to average out over time. They also assumed 20 percent of the total amount was invested each year from 1997 through 2001.
The strategy is a variation of the “Dogs of the Dow,” or buying the five stocks in the Dow Jones Industrial Average with the highest dividend yield at the beginning of each year. Both approaches were developed by Michael O’Higgins, a Miami-based investor who runs his own money-management firm.