State Street SPDR ETFs: Q1 Smart Beta Compass – dividends as an antidote to uncertainty

State Street SPDR ETFs: Q1 Smart Beta Compass – dividends as an antidote to uncertainty

January 30, 2023

Equity
Vermogensgroei.jpg

State Street SPDR ETF’s published its Q1 Smart Beta Compass “Dividends as an Antidote to Uncertainty” and selects inflation, monetary policy and valuations as the three important factors that could continue to support the dividend trade in US and global equities this year.

We would emphasize valuations, given the increase in investor positioning in the value trade. In light of near-term uncertainty, we would encourage investors to consider more defensive portfolio positioning to begin 2023.

  • Inflation & Rates. Despite recent moderation, inflation remains significantly above the long-term target rate, warranting tighter interest rates in major developed markets.
  • Monetary Policy. Tighter monetary policy is expected to continue to drive valuation compression in growth stocks relative to value stocks. Dividend stocks (which skew toward a value bias) should benefit from some relative protection on the forward earnings multiple.
  • Valuations. Despite strong performance, inflows and the movement of real money investors into overweight positioning in dividend stocks on a historical basis, the elevated valuation premium still suggests that value stocks may be cheap relative to growth.

In US and global equities, we would encourage investors to consider a defensive approach to the value trade by using strategies that track a stable dividend methodology.

In Europe, we would continue to use a selective value approach to this theme. The same defensive yield dynamics are less prevalent in European equities. European stocks remain heavily discounted and European central banks are less hawkish in the face of inflation than their developed market peers. Investors concerned with elevated geopolitical risks could consider adding a low volatility ETF to help the portfolio beta for a somewhat risk-off approach.

Related posts