Eq: Large Cap

(New York)

One of the most worrying characteristics of the extremely sharp recovery the market experienced over the summer was the heavy bias towards the highest end of large caps-mega caps. Facebook, Apple, Amazon, Microsoft, and Google led the way while many other stocks continued to fall, or rose much less strongly. However, in the last few weeks that has started to shift, with a resurgence of breadth in the market. Gainers have outpaced losers 2-to-1 over the last two weeks, as investors have started to believe in a strong economic recovery. That means previously underperforming large caps are starting to join small caps in rallying into the growing economic recovery.


FINSUM: This is the perfect time for large cap value. The economic recovery is underway and there are plenty of god value large caps that have room to rise because of unreasonable discounting from COVID.

(New York)

Dividend stocks have gotten a whole lot harder to choose this year. It used to be that you could pick a wide selection of stable decent-yielding stocks and hold them for the long haul. However, COVID has disrupted that in many ways, as it has disproportionately weakened some sectors and disrupted many business models. With that in mind, here are three key lessons to remember when choosing dividend stocks in 2020: expect lower payouts, be wary of financing, don’t chase after yields. The first one is simple—many companies have had to cut dividends and many more will. The second is highly related to the first: be wary when companies have to use debt in order to maintain a dividend. In that sense, simply maintaining the dividend is not necessarily a sign of strength. Finally, and most interestingly, is the lesson about not chasing yields. Because yields are so low, dividend stocks are likely to see gains anyway, so it is more important to focus on the sustainability of dividends than chase yields that might collapse.


FINSUM: All of these lessons make a great deal of sense in the current environment. We particularly like the idea that stocks which don’t have the very highest dividends might actually produce the best combined returns.

(New York)

High yield stocks have been wounded during the pandemic. The 100 worst performing S&P 500 stocks since the pandemic began have returned minus 39% and yield an average of 3.07%; the top 100 have returned over 35% and yield just 0.85%. However, now might be the time to buy in as there are some exceptional values. The core idea is that many of these wounded names are going to be bid up over the next several months as yield-starved investors try to find some income.


FINSUM: Right now it is very important to be selective about dividend stocks, as their returns are all over the map. For example, the Vanguard Dividend Appreciation ETF (VIG) has returned 4% this year, while the iShares Select Dividend ETF has returned minus 18%! The reason why is that the latter was weighted towards utilities and financials, which have suffered. Be careful what you choose!

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