‘Dogs of the Dow’ Strategy Failed to Beat Market, Bespoke Says
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By Nikolaj Gammeltoft
Dec. 12 (Bloomberg) -- The Dogs of the Dow strategy of buying the 10 Dow Jones Industrial Average stocks with the highest dividend yields has failed to deliver market-beating returns in 2009, according to Bespoke Investment Group LLC.
The 10 dogs have returned 11 percent on average, compared with the 29 percent profit from the other 20 Dow companies and 23 percent gain from the entire measure, Bespoke said in a report yesterdaytitled “Dogs Remain Dogs in 2009.” The Harrison, New York-based firm manages money for wealthy investors and provides research to professionals.
“The strategy has underperformed because it was heavily weighted with financial companies, which got hit by the crisis,” said Justin Walters, co-founder of Bespoke. “It has a good a chance of outperforming the market in 2010.”
The approach gained attention after Michael O’Higgins published “Beating the Dow” two decades ago. He wrote in the book that investors could make money buying the worst-performing stocks that pay above-average dividends. The strategy faltered in the late 1990s when technology-related companies soared. It also underperformed last year during the worst financial crisis since the 1930s.
None of the 10 Dow stocks that have risen the most in 2009 were identified as investment candidates by the dogs strategy. Dow companies with the highest yields at the end of 2008 included Fairfield, Connecticut-based General Electric Co. and AT&T Inc. of Dallas, which have posted the third- and fourth- biggest losses in the average this year.
To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net.
Last Updated: December 12, 2009 00:01 EST
