- Last month, the ALPS Sector Dividend Dogs ETF (SDOG), a deep-value portfolio of high-yielding large-cap stocks, outperformed the S&P 500 Index by over 600 basis points (bps) as mega-cap stocks continued to pull back on expensive valuations and slowing expected earnings growth. Notably, SDOG saw nine of its ten sector allocations provide positive relative performance in July against the S&P 500 on a broadening out of sector returns amidst a strong market rotation from expensive tech stocks into value stocks.
- In July, SDOG’s Financials names were benefactors of a wave of earnings beats and buyback announcements as SDOG’s “Dogs of the Dow” methodology shined on these previously lagging names. Citizens Financial Group, Inc. (CFG, 2.31% weight*) surged nearly 20% in July on its strong Q2 2024 earnings, net interest income (NII) margins and loan growth as the fruits of its 2022 retail bank acquisitions begin to pay off. Commercial banking services provider, Truist Financial Corp. (TFC, 2.33% weight*), also rallied 15.03% last month after reporting Q2 2024 earnings above analyst estimates on strong NII that allowed the company to authorize a $5 billion share repurchase program. Continuing the trend of improving outlooks across mid-sized banks, Huntington Bancshares Inc. (HBAN, 2.23% weight*), rose 13.43% last month after a Q2 2024 rebound in NII, with management forecasting accelerating loan activity in the second half of the year as the Federal Reserve (Fed) potentially cuts interest rates.
- Amidst the strong value rotation in the market, SDOG’s Healthcare names put together a solid month with global pharmaceutical producer, Bristol-Myers Squibb Co. (BMY, 2.13% weight*), rallying over 16% in July after posting a blowout Q2 2024 earnings with a boost to its fiscal year (FY) profit forecasts on new drug launches to treat anemia, cardiomyopathy and large B-cell lymphoma. Adding to SDOG’s Healthcare gains last month, pharmaceutical company, Viatris Inc. (VTRS, 2.19% weight*), returned 13.45% on the back of positive analyst commentary around its deleveraging efforts, in addition to a positive EU recommendation for its prostate cancer drug. Gilead Sciences, Inc. (GILD, 2.15% weight*) also bolstered SDOG’s performance last month, with the pharma giant moving 10.86% higher on expectations for its HIV and cancer treatment pipeline driving strong revenue growth in the second half of 2024, enhanced by its $4.3 billion acquisition of CymaBay earlier this year.
- SDOG’s Industrials allocation was the top performing sector in July with power tool manufacturer, Stanley Black & Decker, Inc. (SWK, 2.33% weight*), jumping nearly 33% after posting strong Q2 2024 earnings with analysts touting its long-awaited, positive organic sales growth and improving operational execution. Industrial conglomerate, 3M Co. (MMM, 2.33% weight*), also rallied over 24% last month on a strong Q2 2024 sales and operating profit, buoyed by organic sales growth in its Transportation and Electronics segment. Finally, aviation systems producer, RTX Corp. (RTX, 2.08% weight*), gained over 17% in July following a positive Q2 2024 earnings result on strong commercial aircraft production, as well as increasing global geopolitical instability that has government defense budgets ramping higher.
“This is a once in a generation opportunity in the cheaper corners of the market. When overall profits accelerate, as they are now doing, investors historically have become comparison shoppers for earnings growth. Why pay a lot for something that is everywhere?”
– Richard Bernstein of Richard Bernstein Advisors, July 31, 2024
A Prime Environment for Deep Value Stocks & SDOG to Perform
- The outperformance and concentration risk of expensive mega-cap stocks in the S&P 500 over the past few years has everyone asking the same question: When is market performance going to broaden out? The month of July answered that question emphatically as inflation expectations continued to fall while US corporate earnings came in stronger, resulting in one of the strongest monthly value rotations on record. The key supporting factor of the value rotation, beyond possible Fed cuts in the second half of the year into the first half of 2025, is expected earnings growth. Earnings growth for large-cap value stocks over the next year (forward 12-month values) are expected to average over 7%,** an inflection point that compares favorably to large-cap growth stocks that are expected to show negative earnings growth of nearly -6%.**
- If history repeats itself, large-cap value stocks may be well-positioned for a continued rally and regime shift. The beginning of the last two Fed rate-cutting cycles over the past two decades, excluding the aberration of the 2020 COVID-19 Pandemic, saw value rally sharply against growth stocks as the Fed lowered interest rates with the 2/10-year yield spread steepening from its inverted position. The ALPS Sector Dividend Dogs ETF (SDOG) provides investors with a high-yielding portfolio of deep-value, large-cap names that exhibit attractive valuations (Forward Price/Earnings (P/E) Ratio of 12.0x) compared to both large-cap growth (Forward P/E of 31.3x) and the S&P 500 (Forward P/E of 20.0x).** SDOG’s equally weighted sector exposure (excluding Real Estate) offers the ability for investors to capture the broadening out of sector returns across under-allocated cyclical sectors, including Energy, Materials and Industrials, that tend to shine when the Fed attempts to reaccelerate the economy.
- Dating back to the 1970s, the relative spread of the Russell 1000 Growth Index vs. the Russell 1000 Value Index remains near all-time highs but has shown recent signs of a potential regime shift back to value stocks.
- Importantly, the forward P/E of 15.6x on value stocks is half the forward P/E of 31.3x on growth stocks, signaling an opportunity for investors as 2024 earnings expectations for growth stocks continue to march lower while earnings expectations on value stocks rise.**
Performance summary
Source: Bloomberg L.P. and SS&C ALPS Advisors, cumulative performance as of 07/31/2024 and annualized performance as of 06/30/2024
Performance data quoted represents past performance. Past performance is no guarantee of future results so that shares, when redeemed, may be worth more or less than their original cost. The investment return and principal value will fluctuate. Current performance may be higher or lower than the performance quoted. For current month-end performance call 1-866-759-5679 or visit www.alpsfunds.com. Performance includes reinvested distributions and capital gains.
Market Price is based on the midpoint of the bid/ask spread at 4 p.m. ET and does not represent the returns an investor would receive if shares were traded at other times.
Fund inception date: 06/29/2012
Total Operating Expenses: 0.36%
* Weight in SDOG as of 07/31/2024
** Growth represented by the S&P Growth Index; Value represented by the S&P Value Index; Broad Markets represented by the S&P 500 Index. Forward P/E multiples include forward 12-month estimates, future performance is not guaranteed.
Top 10 Holdings
| 3M Co | 2.33% | Regions Financial Corp | 2.21% | |
| Stanley Black & Decker Inc | 2.33% | Viatris Inc | 2.19% | |
| Truist Financial Corp | 2.33% | Gilead Sciences Inc | 2.15% | |
| Citizens Financial Group Inc | 2.31% | Bristol-Myers Squibb Co | 2.13% | |
| Huntington Bancshares Inc/OH | 2.23% | International Business Machines Corp | 2.09% |
As of 07/31/2024, subject to change
Important Disclosures & Definitions
An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus containing this and other information, call 1-866-759-5679 or visit www.alpsfunds.com. Read the prospectus carefully before investing.
Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemable.
Performance data quoted represents past performance. Past performance is no guarantee of future results; current performance may be higher or lower than performance quoted.
All investments are subject to risks, including the loss of money and the possible loss of the entire principal amount invested. Additional information regarding the risks of this investment is available in the prospectus.
The Fund is subject to the additional risks associated with concentrating its investments in companies in the market sector.
Diversification does not eliminate the risk of experiencing investment losses.
The Fund employs a “passive management” - or indexing - investment approach and seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index. Unlike many investment companies, the Fund is not “actively” managed. Therefore, it would not necessarily sell or buy a security unless that security is removed from or added to the underlying index, respectively.
Basis Point (bps): a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.
Dogs of the Dow Theory: an investment strategy which proposes that an investor annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price.
Forward Price/Earnings (P/E) Ratio: a stock valuation metric that compares a company’s share price to its projected future earnings.
Russell 1000 Growth Index: measures the performance of the large-cap growth segment of the US equity universe. It includes those Russell 1000 companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium term (2 year) growth and higher sales per share historical growth (5 years).
Russell 1000 Value Index: measures the performance of the large-cap value segment of the US equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.
S&P 500 Index: widely regarded as the best single gauge of large-cap US equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
S&P 500 Growth Index: a capitalization-weighted index containing the stocks from the S&P 500 Index with Growth characteristics.
S&P 500 Value Index: a capitalization-weighted index containing the stocks from the S&P 500 Index with Value characteristics.
S-Network Sector Dividend Dogs Index (SDOGX): a rules-based index intended to give investors a means of tracking the overall performance of the highest dividend paying stocks in the SNR 500 on a sector-by-sector basis. The SNR 500 includes the 500 largest US stocks by market capitalization.
One may not invest directly in an index.
ALPS Advisors, Inc., registered investment adviser with the SEC, is the investment adviser to the Fund. ALPS Advisors, Inc. is affiliated with ALPS Portfolio Solutions Distributor, Inc.
ALPS Portfolio Solutions Distributor, Inc. is the distributor for the Fund.
Not FDIC Insured • No Bank Guarantee • May Lose Value
DOG001434 11/30/2024
