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This simple equity investment strategy combines value, quality and dividends into a winning formula



The value stocks have underperformed growth stocks by a large margin under the expanded beef market.

When this card reversed during September, Morningstar did a three-part study of data dating back to the 1990s – another period when growth rides high and value postponed. The analysts then narrowed their focus to the most effective value strategies over the last three years and came to a fascinating conclusion.

For large stocks, Morningstar found tracking of the Dow Jones Industrial Average

DJIA, + 0.1

1%

not only delivered better returns than other value strategies over the last three years, but it also performed well against growth strategies for other, longer periods.

Growth's Triumph

You may already know that the value indices and the funds that track them have halved growth indices and funds since the stock market hit bottom in March 2009, in the wake of the global financial crisis. A major reason is that the value group excludes many of the major technology companies that have increased their sales and revenue exponentially, leading to much better return on investment even though they have traded with much higher ratios of earnings, book value and sales.

Amazon.com

AMZN, -0.16%

is a prime example – Internet pioneer stocks are trading 66.5 times the consensus value per share estimate for the next 12 months, based on analysts polled by FactSet. This compares with a future price / earnings ratio of 17.4 for the S&P 500

SPX, -0.12% .

Over the past ten years, Amazon's shares have often traded at much higher future P / E than they do now. But the stock was up 1.407% for the decade through November 1.

S&P Dow Jones Indices divides the S&P 500 benchmark into value and growth indices, based on price estimates for earnings, book value and sales. This is how ETFs track these two indices, the entire S&P 500 and Dow over the past 10 years:

FactSet

It's no surprise that the Vanguard S&P 500 Growth ETF

VOOG, -0.34%

has been the best performer among the four during this strong growth strategy decade, with the Vanguard S&P 500 Value ETF

VOOV, + 0.17%

hanging far behind. But the SPDR Dow Jones Industrial Average ETF

DIA, + 0.09%

was just a little behind the SPDR S&P 500 ETF Trust

SPY, -0.11% .

What is noteworthy about it is that Dow represents a value portfolio – a much more conservative group of companies than the heavily technology-weighted S&P 500.

And now to appreciate

Tom Lauricella and Katherine Lynch of Morningstar pointed out that before dot The -com bubble started to burst in 2000, growth stocks had also surpassed the value for years. While that and signs of slowing economic growth may make you think it's a good time to trade in value, the authors warned that today's situation is different because "many of the technology stocks that have led the long-term beef market are real companies with real

Which value strategies have been said to be the best in recent years? According to Lauricella and Lynch, there has been a main theme: "Value funds that focused on higher quality companies" tended to perform best, especially those that " focused on dividend-paying companies. "They listed the 10 best-performing values- focused equity funds and exchanged traded funds over the past three years, and the winner was SPDR Dow Jones Industrial Average ETF

DIA, + 0.09% .

Let's return to our group of four ETFs shown in the 10-year chart above, now for three years until November 1:

FactSet

Once again, the Vanguard S&P 500 Growth ETF, but with less than 1 percentage point above the SPDR Dow Jones Industrial Average ETF.

Considering that it is an index consisting of 30 of the most well-known US companies, including many slow growers, many of which have attractive yields, Dow's performance has been incredible. And if you now want to move more of your money into a more conservative value-oriented, dividend-focused strategy, this is the easiest and best-performing value index fund among those tracked by Morningstar. And the annual expenditure ratio is only 0.17%.

Dow 30

Here are the 30 components of the Dow Jones Industrial Average sorted by three years total return (with dividend reinvested) until November 1:

Company Ticker Total return – 3 years [19659029] Dividend yield Forward-to-earnings ratio
Boeing Co.

BA, + 2.05%

[19659035] 161%

2.38% 20.2
Microsoft Corp.

MSFT, -0, 06%

154% 1.42% 26.4
Apple Inc.

AAPL, -0.14%

141% 1.20% 19.8
Visa Inc. Class A

V, -1.44% [19659004]

126% 0.66% [19659035] 28.9
Home Depot Inc.

HD, -1.16%

112% 2.29% 22.3
JPMorgan Chase & amp; Co.

JPM, + 0.22%

100% 2.82% 12.5 [19659042] Caterpillar Inc.

CAT, -0 , 37%

90% 2.85% 14.0
UnitedHealth Group Inc.

UNH, -0.38%

89% 1.71% 15.8
American Express Co.

AXP, -0.71%

88% 1.44% [19659035] 13.8
McDonald & # 39; s Corp.

MCD, + 1.87%

86% 2.58% 22.7
Nike Inc. Class B

NKE, + 0.02%

86% 0.99% 29.2
Walmart Inc.

WMT, + 1.10%

] 82% [19659035] 1.80% 23.6
Intel Corp

INTC, -0.10%

77% 2.23% [19659035] 12.4
Cisco Systems Inc.

] CSCO, + 0.59%

69% 2.98% 14.4
Procter & Gamble Co.

PG, -0.14%

[19659035] 57%

2.41% 23.8 [19659037] Merck & Co. Inc.

MRK, -1.17%

56% 2.59% 16.1
United Technologies Corp.

UTX, + 0.23%

54% 2.00% 17.6
Walt Disney Co.

DIS, -1.11%

50% 1.33% 24.8
Verizon Communications Inc.

VZ, – 0.62%

45% 4.07% 12.1
Coca-Cola Co. [19659128] KO, -1.35%

41% 2.97% 23.9
Pfizer Inc.

PFE, -1 , 45%

38% 3.75% 14.4
Travelers Enterprises Inc.

TRV, + 0.82%

32 % 2.51% 12.4
Goldman Sachs Group Inc.

GS, -0.56%

28% 2.30% 9.4
Johnson & Johnson

JNJ, + 0.15% [19659004]

23% 2.90% 14.9
Chevron Corp.

CVX, + 0.30%

23% 4.10% 17.8
3M Co.

MMM, + 0.21%

12% 3.39% 18.6
International Business Machines Corp.

IBM, + 0.16%

1% [19659035] 4.78% 10.5
Exxon Mobil Corp.

XOM, + 1.98%

-6% 5.00% 21.4
Walgreens Boots Alliance Inc.

WBA, + 2.62%

-25% 3.19% 10.1
Dow Inc.

DOW, + 0.06% [19659004]

N / A 5.35% 13.8
Source: FactSet

You can click on the cross for more about each company.

To read the Morningstar report in its entirety, see the first section for long-term data that explains periods of better growth strategy outcomes. The second section shares insights from asset managers, and the third section lists the most performing asset funds over the past three years.

Create an email alert for Philip van Doorn's Deep Dive columns here.


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